The shareholders of Tesla have argued that the acquisition deal of SolarCity in 2016 was not entirely transparent. Elon Musk attorneys will be defending their position in court today.
On Monday, July 12, billionaire Elon Musk will be in court to defend his $2.6 billion acquisition of SolarCity back in 2016. The shareholders have sued Elon Musk and other Tesla Inc (NASDAQ: TSLA) board members alleging that the deal accounted for a SolarCity bailout.
The shareholders also alleged that the deal has unfairly enriched the Musk family. Besides, they said that Musk and other Tesla members failed to disclosed crucial details of the deal. Thus, they must face charges for breaching their fiduciary responsibilities.
Musk noted that he has been “fully rescued” from the negotiations over the deal. However, Musk is among the only defendants in the case willing to fight it out in court. The hearing is likely to happen later today in Delaware Chancery Court.
Judge Vice-Chancellor Joseph Slights III will have to decide whether if Musk was a conflicted controlling shareholder or ensured the “entire fairness” standard in the handling of this SolarCity acquisition. Basically, the court hearing aims to decide if Elon Musk was acting in the best interest of Tesla shareholders. Also, it aims to know if musk disclosed all crucial information to shareholders pertaining to the acquisition.
Note that the lawsuit has been filed by investors on behalf of the corporation. Thus, if the plaintiffs win, the proceeds shall go to Tesla and not the stakeholders of the suit.
Details of the Filing: Tesla CEO and SolarCity
As per the filing with the chancery court, Elon Musk owned 22.1% of Tesla common stock at the time of the deal back in 2016. Besides, he also owned an additional 21.9% in SolarCity. Operating in the capital-intensive market of residential solar development, SolarCity has been troubled asset bleeding cash.
Later today, Musk’s attorneys will argue that the SolarCity deal didn’t harm the shareholders. Besides, it will also prove that the shareholders voted overwhelmingly to approve the acquisition. Tesla has come a long way since the acquisition deal took place in 2016. the TSLA share price has skyrocketed multifold during the same period.
Interestingly, Tesla alone isn’t part of the conflict. Elon Musk’s aerospace company SpaceX also invested $255 million in SolarCity bonds between 2015 and 2016. Thus, four members of the Tesla board owned the SolarCity stock directly or indirectly during the acquisition.
Back in 2016, Musk called the acquisition of SolarCity a natural combination of his companies and a way for Tesla to pursue its environmental missions. Back then he called this merger “blindingly obvious” while adding “I don’t think this creates additional financial risk for Tesla”.
Even with Tesla pursuing the acquisition, SolarCity has been facing a liquidity crisis and Musk knows well about it. Besides, over the last few years, the company has repeatedly delayed mass manufacturing the solar glass roof tiles. Although Musk presented the production-ready prototypes in 2016, they turned out to be non-functional.
Retail giant Walmart Inc (NYSE: WMT) sued Tesla after the fire broke out on panels installed by SolarCity atop their facilities.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.