As Thomas Patterson examined on Oct. 3 in an InsideCounsel opinion piece, disputes between shareholders can be extremely tough to handle, especially when litigation is involved. Larry Ellison, CEO of Oracle Corp., just learned this lesson the hard way: He will forgo a potential $575 million payment tied to the acquisition of a software maker in order to settle investor
’s claims over the deal.
In 2011, Oracle purchased Pillar Data Systems Inc., a closely held provider of data storage systems, with Ellison controlling 55 percent of the company. The deal required no up-front compensation and allowed for an earn-out payment over the next three years, according to Bloomberg.
However, investors sued in Delaware Chancery Court to challenge the deal. They claimed that Oracle directors improperly used company resources to “bail out” Ellison from his “horrible investment.” They also accused Oracle directors of violating their legal duties to shareholders by backing the Pillar investment. At a hearing in Wilmington, Del., a chancery court judge said the shareholders properly raised questions that the Pillar deal “was a legitimate deal and whether somebody could have gotten a better deal.”
According to Delaware Chancery Court filings, Ellison will pay over 95 percent of his projected $575 million payout from Pillar directly to the shareholders. “After weighing the costs and uncertainties of continued litigation against the benefits of the settlement, plaintiffs have determined it’s in the best interests of Oracle and its stockholders” to settle lawsuits, investors’ lawyers said in court filings according to Bloomberg.
The settlement is contingent upon Oracle winning another court ruling that would require an insurer to pay the shareholders $20 million covering legal fees and filings in the deal. The insurer claims it has not paid the shareholders due to the “excessive nature” of the shareholders’ attorney fees.