By David Ruiz, The Recorder

SAN FRANCISCO — Two recent Silicon Valley M&A deals—Tesla Motors Inc.’s acquisition of Solar City and Oracle Corp.’s purchase of NetSuite—have shed light on executive voting agreements, which prevent powerful shareholders from swatting down competing bids.

Oracle announced on July 28 that it plans to acquire NetSuite for $9.3 billion. Larry Ellison, who is Oracle’s chairman and who owns a 27 percent stake in the company, also owns about 40 percent stake in NetSuite. According to the Financial Times, he stands to net $3.5 billion from the transaction.

Meanwhile, Elon Musk’s company Tesla made a $2.6 billion stock-for-stock bid for SolarCity Corp—another company he is chairman of. Musk owns more than 20 percent of both companies.

The deals raise intriguing questions: What happens if another company makes a better, competing bid for NetSuite or SolarCity? Can Ellison and Musk intervene and block a sale to another bidder? The answer lies in Form 8-K filings the companies made with the U.S. Securities and Exchange Commission.

According to Tesla’s 8-K, filed on Aug. 3, Musk can’t use his voting-share weight to strike down a superior, outside offer for SolarCity.A similar structure is inside Oracle’s deal with San Mateo-based NetSuite, but it applies to NetSuite Restricted Holdings LLC, a vehicle owned by Ellison. According to Oracle’s 8-K, also filed on Aug. 3, if a superior bid comes in, supported by the board and nonexecutive shareholders, NetSuite Restricted Holdings will vote in favor of the bid, even if Ellison himself does not, the agreement said.

Such voting agreements are common in these types of deals, according to corporate lawyers. Preventing one person from overthrowing an incoming deal is important, the lawyers said, as it signals to other companies that new bids will be taken seriously. Often, an independent committee is set up to tackle these very issues.

“The purpose is to try to neutralize the voting power available to a controlling shareholder so as to create a situation in which a potential, topping bidder would not be disincentivized,” said Morrison & Foerster partner Robert Townsend, who did not work on the Oracle-NetSuite and Tesla-SolarCity deals.

Wachtell, Lipton, Rosen & Katz is advising Palo Alto-based Tesla in its purchase of SolarCity. Skadden, Arps, Slate, Meagher & Flom is representing a special committee of SolarCity’s board of directors.

Weil, Gotshal & Manges is representing Oracle in its deal, with the help of GTC Law Group. Skadden is again included, representing the special committee of Oracle’s board of directors. Wilson Sonsini Goodrich & Rosati is advising NetSuite. Wachtell is representing Qatalyst Partners, the financial adviser to NetSuite.

IMAGE: Tesla electric car charging at a parking garage in Austin, Texas. Diego M. Radzinschi

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