Does Elon Musk management Tesla Inc or does Tesla management Elon Musk? Greater than $2 billion hinges on that query as a trial kicks off on Monday. Shareholders allege that Musk used his management of Tesla to pressure the corporate in 2016 to rescue SolarCity, saving the photo voltaic panel maker – and Musk’s funding within the firm – from chapter.
The union pension funds and asset managers main the case need Musk to repay to Tesla the price of the $2.6 billion deal and to disgorge the income on his SolarCity inventory. In the event that they win, it might be one of many largest judgments towards a person.
The 2-week trial within the Court docket of Chancery in Wilmington, Delaware, will boil down as to whether Musk, who owned about 22% of Tesla on the time of the deal, is that uncommon controlling stockholder who doesn’t maintain a majority stake.
“I feel it’ll be very exhausting for the court docket to disregard the truth that Elon Musk is Elon Musk and his relationship with Tesla,” stated Ann Lipton, a professor at Tulane College Legislation College.
She stated the case may current an uncommon state of affairs given Musk’s celeb standing, his private ties to Tesla board members and people board members’ monetary ties to SolarCity.
“Put all of it collectively, and it is likely to be sufficient to rely as a controlling shareholder,” she stated.
Few executives dominate their firm’s picture as a lot Musk, recognized for taunting regulators, battling naysayers and personally partaking together with his 57 million Twitter followers.
“We’re extremely depending on the providers of Elon Musk, Technoking of Tesla and our Chief Govt Officer,” stated Tesla’s 2020 annual report.
Plaintiffs allege that Musk drove the negotiations and even pushed Tesla’s board to boost, not decrease, the worth for SolarCity.
The next worth benefited Musk, who was the most important shareholder of SolarCity, with a stake of about 22%, in addition to 4 members of Tesla’s board, who straight or not directly owned SolarCity inventory, in line with court docket information.
Board members settled allegations towards them final yr for $60 million and didn’t admit to any fault.
Plaintiffs additionally allege the deal benefited two of Musk’s cousins who based SolarCity, saving an organization that was quickly operating low on money.
Musk has stated he was “totally recused” from board negotiations and that shareholders voted to approve the deal as a result of it was central to his “Grasp Plan, Half Deux” that goals to combine sustainable photo voltaic power with electrical self-driving automobiles.
He has stated that what plaintiffs see as proof of management is little greater than sturdy administration.
“Taken to its pure conclusion, nearly all ‘hands-on’ and ‘inspirational’ CEOs with minority inventory possession could be deemed controllers,” Musk’s attorneys wrote in a court docket submitting.
If Vice Chancellor Joseph Slights determines Musk was a controlling shareholder, it should fall to Musk to show the SolarCity deal met the excessive bar of the “whole equity” commonplace, which examines course of and worth, stated authorized specialists.
Musk has famous in court docket papers that the SolarCity deal has been an enormous success for Tesla shareholders, demonstrating the deal was not solely honest, however a boon. After Tesla cut up its inventory 5-1 in 2020, it has risen to $652 on Thursday from close to $37 a share when the deal closed in November 2016.
“If the vice chancellor thinks this deal was terrible and was not successfully negotiated on behalf of the corporate, he’ll strike it down,” stated Larry Hamermesh, a professor at Delaware Legislation College.