Clear Buy Signal for ORCL

by Johnny Debacle

A clear buy signal for Oracle (ORCL) is provided in a SF Chronic Article on Larry Ellison’s spending habits.

In e-mails, which stem from a recent shareholder lawsuit against the technology titan, Ellison’s accountant, Philip Simon, warns the billionaire about his habitual runaway spending. Like a concerned parent, Simon chides Ellison for overextending himself on a new yacht, on his America’s Cup team and on his new houses in Woodside and Malibu.

According to documents unsealed by a judge in the shareholder lawsuit, Ellison habitually pushes his credit limit of more than a billion dollars to its maximum to finance his yachts and homes. And that’s not even counting some $20 million a year he burns through in miscellaneous lifestyle expenses.

Ellison, who identifies strongly with the company he founded in 1977, has been famously unwilling to sell Oracle shares over the years.

Instead of selling them, he has financed his lavish lifestyle — the 23-acre Japanese-style estate in Woodside, the yachts, the airplanes, the Armani suits — by borrowing against his stock.

Getting back to the scary days of 2000, when the tech stock market was imploding, a list of Ellison’s debts as of July 13, 2000, showed that he owed $1.022 billion to five banks: JP Morgan, Bankers Trust, CMB, Merrill Lynch and UBS. At that time, those loans came from credit lines that had a combined limit of $1.35 billion, putting Ellison a mere $328 million from maxing out.

At the bottom of a document that detailed Ellison’s 2000 debt load, Simon had scrawled a rough accounting of Ellison’s lavish spending, according to deposition testimony:

“1) Life Style — annual $20m

2) Interest Accrual — annual $75m

3) Villa in Japan — $25m

4) New Yacht — $194m — over 3 yrs

5) America’s Cup — $80m — over 3 yrs

6) UAD — 12m over 3 yrs.”

It’s not clear what UAD refers to. Since this rough budget, Ellison has reportedly spent $200 million building a Japanese-style estate in Woodside, which includes a reproduction of a 17th-century Kyoto teahouse. He has also bought multiple properties in Malibu — $180 million worth, by one report.

Long or Short Capital LOVES stock secured debt loads incurred by CEO’s. What’s a clearer signal of a stock’s value than a CEO being willing to use it as collateral for a loan to build a $200mm replica samurai house in Northern California? As far as what UAD line item represents, my guess would be “Stanford Freshman Girls.”

Recommendation: Long ORCL per the Satan’s Portfolio investing thesis.

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