July 9 (Reuters) – Does Elon Musk control Tesla Inc (TSLA.O) or does Tesla control Elon Musk?
More than $ 2 billion depends on this issue as a trial begins Monday. Shareholders allege Musk used his control over Tesla to force the company in 2016 to save SolarCity, thereby saving the solar panel maker – and Musk’s investment in the company – from bankruptcy.
Union pension funds and asset managers running the case want Musk to reimburse Tesla for the cost of the $ 2.6 billion deal and return the profits from his SolarCity stock. If they win it would be one of the biggest judgments against an individual.
The two-week trial in the Wilmington, Delaware Court of Chancellery will come down to whether Musk, who owned around 22% of Tesla at the time of the transaction, is that rare majority shareholder who does not have a controlling stake.
“I think it will be very difficult for the court to ignore the reality that Elon Musk is Elon Musk and his relationship with Tesla,” said Ann Lipton, professor at Tulane University Law School.
She said the case could present an unusual situation given Musk’s celebrity status, personal ties to Tesla board members, and those members’ financial ties to SolarCity.
“Put it all together, and it might be enough to count as a majority shareholder,” she said.
Few executives dominate their corporate image as much as Musk, known for mocking regulators, battling naysayers, and engaging personally with his 57 million Twitter followers.
“We depend heavily on the services of Elon Musk, Technoking of Tesla and our CEO,” Tesla’s 2020 annual report said.
The plaintiffs allege that Musk led the negotiations and even pushed Tesla’s board to raise, not lower, the price of SolarCity.
A higher price benefited Musk, who was SolarCity’s largest shareholder, with an approximate 22% stake, as well as four Tesla board members, who directly or indirectly owned shares in SolarCity. , according to court records.
Board members settled the allegations against them last year for $ 60 million and have admitted no wrongdoing.
The plaintiffs also allege that the deal benefited two of Musk’s cousins who founded SolarCity, saving a business that was quickly running out of cash.
Musk said he was “totally challenged” from board negotiations and that shareholders voted to approve the deal because it was central to his “Master Plan, Part Deux” which aims to incorporate the sustainable solar energy to self-driving electric cars.
He said what complainants see as proof of control is little more than sound management.
“Taken to its natural conclusion, virtually any ‘practical’ and ‘inspirational’ CEOs ‘holding minority shares would be considered controllers,’ Musk’s attorneys wrote in a court filing.
If Vice-Chancellor Joseph Slights determines that Musk was a majority shareholder, it will be up to Musk to prove that the SolarCity deal has reached the high bar of the “total fairness” standard, which examines process and price, have said legal experts.
Musk noted in court documents that the SolarCity deal was a huge success for Tesla shareholders, demonstrating that the deal was not only fair, but a godsend. After Tesla split its stock 5 to 1 in 2020, it rose to $ 652 on Thursday, from nearly $ 37 per share when the deal closed in November 2016.
“If the Vice Chancellor thinks this deal was horrible and was not negotiated effectively on behalf of the company, he will cancel it,” said Larry Hamermesh, professor at Delaware Law School.
Reporting by Tom Hals in Wilmington, Delaware and Sierra Jackson in New York; Editing by Noeleen Walder and Dan Grebler
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