Shareholders have sued Tesla's Technoking, Elon Musk, arguing, among other things, that the acquisition amounted to a SolarCity bailout that rewarded Musk and his family more than Tesla. Musk might be forced to pay upwards of $2 billion from his huge personal wealth if shareholders win their case.
Last year, the board members involved in the lawsuit reached a $60 million settlement with Tesla shareholders, with no admission of guilt. Musk, the world's second wealthiest person, was the only defendant who elected to go to court. Tesla had to buy SolarCity in 2016 because the failed solar panel company was critical to the electric vehicle maker's long-term objective of speeding up the transition to sustainable energy, Elon Musk told a judge.
The celebrity CEO spoke for almost eight hours over two days in response to a lawsuit filed by union pension funds and asset managers alleging that he pressured Tesla directors into buying the cash depleted SolarCity for $US2.6 billion ($3.5 billion). Musk had a 22 percent ownership in Tesla and SolarCity, which was created by his cousins, at the time. Tesla shareholders want Musk to be forced to repay the deal's value to the company. They further claim that it enriched the Musk family, who were among the company's top owners, and that Musk and others neglected to disclose all relevant information and breached their fiduciary duties. Musk has stated that he was "fully recused" from the deal's talks.
Tesla acquires SolarCity in 2016
Musk wrapped off his hearing by answering questions regarding the deal's timing and necessity. Tesla struggled to create its Powerwall battery technology in 2016 because it was difficult to interface with existing solar power systems, according to Musk. “If we have a whole bunch of third-party solar systems, it’s a messy situation. We needed solar within Tesla,” he told the judge.
Despite holding only 22% of Tesla, the complaint alleges that Musk was a majority shareholder due to his links to board members and dominating demeanour. If plaintiffs can demonstrate this, the court is more likely to rule that the deal was unjust to shareholders. Musk has repeatedly stated in court that the SolarCity agreement was mostly handled by the Tesla board, and that he was not a member of the board committee that negotiated the terms.
Musk was asked by shareholder attorney Randall Baron on Tuesday to explain meeting notes obtained by a financial advisor, which showed Musk suggesting the board offer a $US28.50 share price for SolarCity. Baron questioned whether this contradicted Musk's claim that he had totally recused himself from the talks.
“I was making the obvious point that any offer, if not publicly defensible, will be rejected by SolarCity shareholders,” Musk said.
Musk highlighted that his offer was overruled at that meeting in answer to questioning from his own lawyer Evan Chesler, who was attempting to establish Musk did not dominate board deliberations. Musk appeared quiet and depressed throughout his hearing on Tuesday.
Musk was questioned by Baron about why he examined deal packages for the Tesla board before sending them to directors, implying that the CEO was in charge of information flow. “It’s part of the board process to make sure they have full and accurate information,” Musk testified.
Musk defended the SolarCity transaction on Monday, saying the company needed to be acquired swiftly or find finance to fix its serious financial crisis. He claimed that long negotiations with Tesla would have left SolarCity in limbo since they would have precluded the company from obtaining outside investment.
According to legal experts, the judge would look for evidence that Musk threatened board members or that directors felt powerless in the face of him. For the length of the trial, board members and others involved in the 2016 arrangement will testify. Elon’s brother, Kimbal Musk took the stand on Tuesday afternoon.
In this case, there is no jury to persuade. Vice-Chancellor Joseph Slights III of the Delaware Chancery Court will decide on his destiny.