Musk will testify on SolarCity’s $ 2.6 billion acquisition of Tesla

Elon Musk has embodied Tesla for more than a decade, becoming himself the extravagant ambassador for the electric car revolution. On Monday, the showman’s boss will try to prove to a Delaware judge that, whatever his importance, he does not control the company.

Musk is the first and foremost witness in a lawsuit over the acquisition of SolarCity from Tesla, its initial high-powered solar starter that was spinning just before Tesla launched to buy in 2016 for $ 2.6 billion in Tesla shares.

Tesla’s dissident shareholders said Musk developed the acquisition not to create an integrated clean energy plant as he said, but to use the manufacturer’s balance sheet to save one of his grand projects.

Despite the fact that Musk’s economic and voting interest in the company was only 22 percent, the shareholders in question say that the pure strength of Musk’s persona allowed him to dominate Tesla’s board of directors, where he also independent directors were bound to him.

Tesla rejects this argument, adding that Tesla’s non-affiliated shareholders voted in large part to approve the acquisition of SolarCity. If the court finds that Musk acted as a controlling shareholder, Musk will face a higher legal bar in proving that the agreement was reasonable for all shareholders.

The decision could have significant implications since corporate law addresses the involvement of all of the founder’s powerful executives, particularly in the technology sector.

“The case has the potential to provide more guidance not only to the courts, but also to dealing with planners, as to the factors that the courts are likely to take into account in determining whether someone is a controller,” said Ann Lipton. , professor of law at Tulane University in New Orleans.

SolarCity employees unload solar panels from a truck during a home installation in New Jersey

SolarCity was founded by Elon Musk and two of his cousins ​​in 2006 © Michael Nagle / Bloomberg

SolarCity was founded in 2006 by Musk and his cousins ​​Peter and Lyndon Rive. The company installed solar panels on the roof for customers who then paid SolarCity for the electricity generated. In 2016, SolarCity was listed, but the capital-intensive nature of its business model left it with more than $ 3 billion in total debt and was in danger of violating pacts on minimum liquidity.

Shares of Tesla fell one-tenth on June 21, 2016, the day the SolarCity merger was announced, losing $ 3 billion in market value, a figure greater than the purchase price.

Equity research analysts at Goldman Sachs wrote at the time that the energy company was the “worst positioned” company in the solar start-up segment.

However, later in 2016 nearly 90 percent of non-affiliated Tesla shareholders who sent ballots voted to approve the deal, supporting Musk’s vision for the combined company. The shareholder vote was not necessary to close the acquisition, but Tesla hoped it would inoculate the vote out of a messy legal challenge.

Opponents of the agreement were cited in any case.

Storage (gigawatt) deployment line diagram showing Telsa consumer solar energy activity has started to grow

In early 2018, Delaware Vice-Chancellor of the Delaware Court of Justice, Joseph Slights, rejected the council’s motion to dismiss shareholder challenges, writing that “it is reasonably conceivable that Musk, as controlling shareholder, controlled Tesla’s board of directors in connection with the acquisition “and that” there has been virtually no action taken to separate Musk from the consideration of the acquisition board. “

In court documents, Musk’s attorneys wrote, “Evidence from the trial will show that Musk did not control Tesla’s advice in connection with the acquisition. Musk was denied by the council’s votes regarding the purchase. “acquisition, and did not exercise real control over the other members of the board. In fact, Tesla’s board exercised its independence from Musk.”

The Delaware court has typically not ruled that a stake of only about one-fifth qualifies as a control. But Silicon Valley start-ups with visionary CEO foundings can prove to be a unique corporate governance dilemma.

“Shareholders’ lawyers have been creative in pressuring them to control the doctrine of shareholders and Chancellor’s judges want to place more and more weight on the issue, ”said Lipton, the law professor.

The Tesla shareholders in question have also made allegations in addition to the controller’s argument that it could force a higher legal standard on Musk. They said Tesla’s directors – many of whom had ties to Musk because of SolarCity or its company SpaceX – were in conflict. They also said that SolarCity’s terrible condition had not been properly disclosed in the SEC filing.

While his lawsuit alleges that SolarCity was insolvent and thus useless, its commercial value was about $ 2 billion before Tesla disclosed its 2016 offer.

Stock price line chart ($) showing Telsa’s performance

Tesla’s stock is more than 15 times higher than its level in June 2016. The company’s solar deployment volume, measured in megawatts, had jumped by almost a fifth in 2020 compared to the year before.

In January 2020, Tesla executives, in addition to Musk, settled claims against them for $ 60 million, to be funded by the company’s corporate insurance. Musk remains the only major defendant.

His testimony could be colored if his June 2019 deposition in the case is any indication.

Musk repeatedly reprimanded stock lawyer Randall Baron for questioning him, calling him a “shameful person” who “had no conscience,” and an “economy scam” that made Musk “sad for the ‘event. “

Musk also offered a summary of his legal argument in the deposition. The Tesla / SolarCity deal was a “stock for stock transaction” and the cause “tries to guess experienced investors as to what the combination report will be,” he said. “Between [legal] previous, it would be a disaster for America. “

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button