Does Elon Musk manage Tesla Inc or does Tesla manage Elon Musk?
More than $2 billion hinges on that query as a trial kicks off on Monday. Shareholders allege that Musk made use of his manage of Tesla to force the corporation in 2016 to rescue SolarCity, saving the solar panel maker – and Musk’s investment in the corporation – from bankruptcy.
The union pension funds and asset managers major the case want Musk to repay to Tesla the expense of the $2.6 billion deal and to disgorge the earnings on his SolarCity stock. If they win, it would be one of the biggest judgments against an person.
The two-week trial in the Court of Chancery in Wilmington, Delaware, will boil down to whether or not Musk, who owned about 22% of Tesla at the time of the deal, is that uncommon controlling stockholder who does not hold a majority stake.
“I think it’s going to be very hard for the court to ignore the reality that Elon Musk is Elon Musk and his relationship with Tesla,” stated Ann Lipton, a professor at Tulane University Law School.
She stated the case could present an uncommon predicament offered Musk’s celebrity status, his private ties to Tesla board members and these board members’ monetary ties to SolarCity.
“Put it all together, and it might be enough to count as a controlling shareholder,” she stated.
Few executives dominate their company’s image as a lot Musk, identified for taunting regulators, battling naysayers and personally engaging with his 57 million Twitter followers.
“We are highly dependent on the services of Elon Musk, Technoking of Tesla and our Chief Executive Officer,” stated Tesla’s 2020 annual report.
Plaintiffs allege that Musk drove the negotiations and even pushed Tesla’s board to raise, not decrease, the cost for SolarCity.
A greater cost benefited Musk, who was the biggest shareholder of SolarCity, with a stake of about 22%, as properly as 4 members of Tesla’s board, who straight or indirectly owned SolarCity stock, according to court records.
Board members settled allegations against them last year for $60 million and did not admit to any fault.
Plaintiffs also allege the deal benefited two of Musk’s cousins who founded SolarCity, saving a corporation that was quickly operating low on money.
Musk has stated he was “fully recused” from board negotiations and that shareholders voted to approve the deal since it was central to his “Master Plan, Part Deux” that aims to integrate sustainable solar power with electric self-driving automobiles.
He has stated that what plaintiffs see as proof of manage is tiny more than powerful management.
“Taken to its natural conclusion, virtually all ‘hands-on’ and ‘inspirational’ CEOs with minority stock ownership would be deemed controllers,” Musk’s lawyers wrote in a court filing.
If Vice Chancellor Joseph Slights determines Musk was a controlling shareholder, it will fall to Musk to prove the SolarCity deal met the higher bar of the “entire fairness” normal, which examines procedure and cost, stated legal specialists.
Musk has noted in court papers that the SolarCity deal has been a big accomplishment for Tesla shareholders, demonstrating the deal was not only fair, but a boon. After Tesla split its stock 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 awful and was not effectively negotiated on behalf of the company, he’ll strike it down,” stated Larry Hamermesh, a professor at Delaware Law School.
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