NetSuite raises price range ahead of IPO

By Lilla Zuill

NEW YORK (Reuters) December 19, 2007 - NetSuite Inc, a software maker majority owned by Oracle Corp (ORCL.O: Quote, Profile, Research) Chief Executive Larry Ellison, on Wednesday raised the estimated price range for its initial public offering for the second time in as many days.

The company now expects to sell its stock for between $19 and $22 a share, the company said in a filing with the U.S. Securities and Exchange Commission.

NetSuite, which is selling 6.2 million shares, had on Tuesday raised the estimated price to $16 to $19 a share from an earlier range of $13 to $16. The offering is expected to price after the market close on Wednesday, and begin trade on the New York Stock Exchange on Thursday under the symbol "N" N.N.

Including an over-allotment of up to 930,000 shares, NetSuite could raise up to $156.9 million in the offering.

NetSuite offers its products over the Web to small and mid-size companies, and competes in the business software market with companies such as Microsoft Corp (MSFT.O: Quote, Profile, Research), SAP AG (SAPG.DE: Quote, Profile, Research), Intuit Inc (INTU.O: Quote, Profile, Research) and Salesforce.com Inc (CRM.N: Quote, Profile, Research).

TOO PRICEY?

NetSuite's offering is being run as a modified Dutch auction, allowing investors to submit bids and thereby have more control over the IPO's pricing -- a process usually managed by underwriters.

Analysts said that investors have been driving up NetSuite's price either to benefit from a potential rise in the stock price when the company debuts, or in anticipation of strong near-term growth.

"Investors, or traders, put artificially high bids in, which forces the price range up," said Scott Sweet, managing director of IPOboutique.com. He added that while he thinks NetSuite has strong long-term potential, the second price revision values the company too richly.

Under the auction process a clearing price is set, which is the highest price at which all of the shares offered may be sold to investors. However, the company does have the discretion to price the offering below the clearing price.

Google Inc (GOOG.O: Quote, Profile, Research) went that route with its IPO several years ago, also a modified Dutch auction, choosing to price the shares at $85 each although it could have priced them in the region of $100, analysts said.

Founded in 1998, NetSuite, which has yet to turn a profit, is priced at a premium relative to at least one competitor, Salesforce.com, according to Francis Gaskins, president of research firm IPOdesktop.com.

Using the midpoint of NetSuite's price range, it is valued at 10.9 versus Salesforce's 9.2 price-to-sales valuation, based on the latter's Wednesday trading price of about $60 and latest quarterly results.

On a price-to-book basis, NetSuite's valuation is 18.7 to Salesforce's 17.7, Gaskins added.

Gaskins said while the size of NetSuite's offering -- floating about 10 percent of the company to the public -- has not changed, the projected market capitalization has risen 40 percent, based on the higher forecast, to $1.2 billion.

Salesforce, which is profitable, has a market cap of about $7 billion.

NetSuite declined to comment.

The IPO is being led by Credit Suisse, with W.R. Hambrecht as co-manager.

The auction process, which is being managed electronically through a dedicated Web site, www.netsuiteipo.com, kicked off last week.

(Additional reporting by Chris Reiter; Editing by Steve Orlofsky and Gerald E. McCormick)