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Ellison's NetSuite Seeks up to $99M in IPO

NetSuite, a software maker majority-owned by Oracle Chief Executive Larry Ellison, said on Wednesday it planned to raise up to $99 million in an initial public offering.

The company, which sells to small and mid-sized companies, filed to sell 6.2 million shares for $13 to $16 each, according to an amended statement with the U.S. Securities and Exchange Commission.

NetSuite executives are expected to begin meeting on Thursday with interested IPO investors, according to a person familiar with the plans. Companies selling shares to the public for the first time generally launch investor meetings, or "road shows," in the two weeks before a final IPO price is reached.

NetSuite's IPO will be conducted in an auction format, a process that gives investors rather than underwriters a strong voice in the final pricing.

While not common, auction-based IPOs have been used by some high-profile issuers. Options-trading firm Interactive Brokers Group raised $1.2 billion this year, and Google used a modified auction format in its 2004 offering.

NetSuite said it would use IPO proceeds to pay down a line of credit from an Ellison-controlled company, which had a balance of $8 million as of Sept. 30, and for capital expenditure, including a second data center.

Based on the 59.5 million shares that will be outstanding after the offering, NetSuite is floating 10.4 percent of the company. At the top end of its pricing range, NetSuite's initial market capitalization would be $950 million.

The company, which first announced IPO plans in July, recently said Ellison would put his directly owned stake, equal to about 61 percent of outstanding shares, into a "lockbox."

That effectively strips him of voting rights, reducing conflict-of-interest concerns raised because of his position at Oracle, which NetSuite considers a potential competitor.

Oracle, co-founded by Ellison, sells similar types of software, but its products are aimed at larger corporations.

After the offering, Ellison and family members will beneficially own about 70 percent of the company.

Tech buzz

The value of new U.S. listings by technology companies have surged 120 percent this year, according to Richard Peterson, director of capital markets research for Thomson Financial.

Many tech shares have performed well since their debuts. Software maker VMWare is the second-best-performing IPO this year, rising 232 percent since its August opening.

But in contrast to the frothy conditions surrounding a tech IPO surge in the late 1990s, investors have been far pickier, expecting companies to be profitable or near break-even, which could be a sticking point for NetSuite, analysts said.

NetSuite products are accessed via Web browsers and hosted on servers maintained by the company, an emerging area that many software companies, including Microsoft, Intuit and SAP, have branched into.

San Mateo, California-based NetSuite, formed in 1998, was a pioneer in this growing market, but has yet to turn a profit.

"Things are looking up," for NetSuite, said Francis Gaskins, president of research firm IPOdesktop.com, citing a narrower third-quarter loss of $1.8 million versus $9.2 million a year ago and revenue rising to $28 million from $18 million.

"That is a 6 percent loss ratio versus a 37 percent loss ratio in the June quarter," Gaskins said. "It would have been hard to do an IPO based on the June quarter." But he added that investors will expect NetSuite to turn a profit quickly.

Based on sales last quarter and the midpoint of NetSuite's offering range, Gaskins said it had a price-to-sales ratio of 7.7, below rival Salesforce.com's ratio of 8.6.

"NetSuite has done a credible job, but I think they should have (grown) bigger by now," Gaskins said.

The company is applying to list its shares on the New York Stock Exchange under the symbol "N".

Underwriters, led by Credit Suisse and W.R. Hambrecht and Co, have the option to purchase an additional 930,000 shares to cover overallotments, according to the filing.