The deal will bring together two companies linked to high-profile technology billionaire Larry Ellison. In addition to being Oracle's executive chairman, entities he owns hold about 40 percent of NetSuite's shares, according to a regulatory filing, a situation corporate governance consultants said would increase scrutiny of the deal.
NetSuite shares rose about 18 percent to $108.30, just shy of the offer price of $109 a share. Oracle shares were up 0.5 percent at $41.15.
"It's definitely pricey from Oracle's perspective but it's understandable and it's justifiable especially in this environment," said Morningstar analyst Rodney Nelson, who noted some companies in the sector have sold for high multiples.
Oracle and NetSuite both offer software applications that help companies automate back end and administrative operations from technology to human resources.
NetSuite's chief executive, Zach Nelson, was responsible for Oracle's global marketing from 1996 to 1998.
Oracle's cloud business, which stores enterprise software and data on remote servers, lets the company sell to clients who lack the budget for on-site hardware and technology staff.
Like rivals SAP SE , Amazon.com Inc and Microsoft Corp , Oracle has focussed on moving its business toward the cloud-computing model as sales of traditional software licenses struggle.
The deal also could help Oracle, which is aggressively trying to build and sell more cloud-based business software, play catch up with competitors such as Workday Inc and Salesforce.com Inc that specialize in cloud-based offerings.
Jefferies analysts said in a note the deal provides an immediate, significant entry into the mid-market for corporate applications but that "the price paid seems steep."
Oracle also has acquired companies such as Textura and Opower to increase its competitiveness in the cloud market. Morningstar's Nelson said NetSuite would be Oracle's largest purchase since PeopleSoft more than a decade ago.
The company expects the deal to add to its adjusted earnings in the first full fiscal year after it closes.
Corporate governance scrutiny
Oracle said the evaluation and negotiation of the deal was led by a committee of independent directors. Closing is conditional on investors tendering a majority of the NetSuite shares not owned by executive officers, directors or people affiliated with Ellison and his family.
Kevin McManus, vice president of Egan-Jones Proxy Services, said he expects a few investors might object to Ellison being on both sides but that most investors likely will not care.
"People care (about governance) when someone makes the wrong decision," he said. "But if the merger makes sense for the market, it's going to be hard to complain too much."
In June, Oracle said revenue from its cloud-computing software and platform service accounted for 8 percent of overall revenue.
© Thomson Reuters 2016