Tesla Shareholders Allege Musk Coerced Board in SolarCity Acquisition

Tesla Shareholders Allege Coercion in SolarCity Acquisition

Tesla shareholders are seeking a judicial ruling that CEO Elon Musk improperly pressured the company’s board into acquiring SolarCity in 2016. They contend the deal functioned as a “bailout” for the struggling solar firm, in which Musk held a significant ownership stake.

Shareholder Demands

During a recent Zoom hearing, legal representatives for the shareholders requested the court order Musk to relinquish the stock he obtained through the acquisition and to reimburse Tesla $13 billion.

The transaction, initially valued at $2.6 billion and executed entirely in stock, has seen its worth increase substantially due to the subsequent rise in Tesla’s stock price.

Central Question of Undue Influence

A key point of contention revolves around whether Musk exerted inappropriate influence over the acquisition process. Furthermore, the shareholders question if both Musk and other board members withheld crucial information from investors regarding the deal.

Randy Baron, representing the shareholders, stated, as reported by Reuters, that the core issue is whether the SolarCity acquisition was a financially motivated rescue operation orchestrated by Elon Musk.

SolarCity’s Financial Situation

The lawsuit, brought forth by union pension funds and asset managers, details SolarCity’s consistent inability to generate profits. It highlights the company’s escalating debt and unsustainable cash burn rate.

Over its decade-long history, SolarCity accumulated over $3 billion in debt, with nearly half of that amount becoming due in 2017.

Musk’s Defense: A Long-Term Vision

Musk’s legal team previously argued that the acquisition aligned with his broader vision of transforming Tesla into a comprehensive energy company.

The CEO has publicly stated that integrating SolarCity with Tesla was essential to realizing his concept of combining Tesla’s Powerwall battery storage system with its solar roof tiles.

According to Reuters, Chesler, representing Musk, asserted that the acquisition was building significant long-term value.

Contempt for the Legal Process

The hearing took a notable turn when shareholder attorney Lee Rudy requested Vice Chancellor Joseph Slights of Delaware’s Court of Chancery to consider Musk’s dismissive behavior towards the deposition and trial proceedings, including repeated disparaging remarks directed at shareholder attorneys.

Upcoming Ruling and Related Lawsuit

Vice Chancellor Slights indicated he anticipates issuing a ruling within approximately three months, coinciding with his planned retirement.

Separately, a related shareholder lawsuit challenging Musk’s substantial compensation package has been reassigned to a different judge.

Key Takeaways

• Shareholders allege Elon Musk coerced the Tesla board.
• The acquisition of SolarCity is viewed as a potential bailout.
• A ruling is expected within three months.
• Tesla stock appreciation significantly increased the deal’s value.