Ellison's NetSuite soars in market debut

NEW YORK, Dec 20 (Reuters) - NetSuite Inc N.N, a business software maker majority-owned by Oracle Corp (ORCL.O: Quote, Profile, Research) Chief Executive Larry Ellison, surged almost 37 percent in its market debut on Thursday, a day after its initial public offering priced far higher than expectations.

NetSuite's stellar debut -- the last new issue on the 2007 U.S. IPO calendar -- ended the year on a high note, although it did not appear to be headed that way at first.

The shares opened on par with the company's $26 IPO price, reached in a Dutch auction based on investor bids, then fell as much as 3.6 percent. It was not until several hours into trading that NetSuite's shares regained ground, then surged.

By the end of the day, the shares were up $9.50 at $35.50, and turnover was high.

"Until noontime it was trading in an anemic fashion and looked like it was a broken IPO," said Scott Sweet, managing director of IPOboutique.com. "Then it literally exploded."

Sweet said some early holders felt the stock was too costly -- with its $26 offering price putting it at a premium to some peers -- and sold out. Then other investors piled in, convinced the company's future is bright.

Investors snapped up shares hoping to tap into growth in the hot "on-demand" Web-based software sector that NetSuite is a leading player in and because of Ellison's involvement.

Nearly 16 million NetSuite shares changed hands on Thursday, or more than double the 6.2 million shares issued in the offering -- far higher than normal for a new issue.

On Wednesday, NetSuite's offering of 6.2 million shares, which floated about 10 percent of the company's outstanding shares, raised $161 million at a price double the low end of an initial forecast range of $13 to $16, and $4 a share higher than the top of the final forecast of $19 to $22.

Underwriters, led by Credit Suisse (CS.N: Quote, Profile, Research) with W.R. Hambrecht working as co-manager, have the option to purchase an additional 930,000 shares, which could increase the amount raised to $185 million.

ELLISON'S TOUCH

Ellison -- who has amassed a fortune since Oracle went public, becoming the fourth-richest American according to Fortune's 2006 list -- drew investors to NetSuite based on Oracle's stellar performance through the years.

Oracle, which targets large corporations while NetSuite's audience is small to mid-size companies, posted a 35 percent profit surge in after-market trading on Wednesday and traded almost 7 percent higher on Thursday.

Post-offering, the tech billionaire will beneficially own about 60 percent of the company through related entities and family trusts. Earlier, Ellison transferred his directly owned stake into a "lockbox" company that limits his say at the company, thereby easing concerns his role in both Oracle and NetSuite could create a conflict of interest.

But Sweet said investors see Ellison as having influence at NetSuite.

"He has handpicked Oracle ex-employees running NetSuite, which has had a positive influence on the stock," Sweet said.

Ellison put $100 million into NetSuite in 1998 when it was co-founded by former Oracle executive Evan Goldberg, the company's chairman and chief technology officer. Chief Executive Zachary Nelson, who became NetSuite CEO in 2003, also formerly worked at Oracle.

NetSuite, which has more than 5,000 customers, has said it will use part of the proceeds to pay down a line of credit from an Ellison-controlled company that had a balance of $8 million as of Sept. 30.

NetSuite, which has yet to turn a profit, but drew closer to break even in the last quarter, has a price-to-book value of 23.7, based on its $26 offering price, versus key rival Salesforce.com's (CRM.N: Quote, Profile, Research) 17.7, according to Francis Gaskins, president of research firm IPOdesktop.com.

Gaskins said the spike in NetSuite's stock on Thursday was likely an indication that investors are betting the software company is about to report strong fourth quarter results and could be on track to gobble up market share, and grow to be similar in size to Salesforce, Gaskins said.

At its offering price, NetSuite has a market capitalization of about $1.5 billion, while Salesforce's stock price values it at more than $7 billion.

Salesforce was also trading higher on Thursday, up more than 8 percent at $64.99. (Reporting by Lilla Zuill; Editing by Gary Hill/Andre Grenon)