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Reuters, July 9 – Is Elon Musk in charge of Tesla Inc. (TSLA.O) or is Tesla in charge of Elon Musk? As a trial begins on Monday, more than $2 billion is on the line. Shareholders claim Musk used his control of Tesla to push the firm to save SolarCity from bankruptcy in 2016, safeguarding Musk’s investment in the solar panel maker. Musk is being sued by a group of union pension funds and asset managers who want him to repay Tesla for the $2.6 billion acquisition and disgorge the profits on his SolarCity stock. If they win, it will be one of the most significant judgements ever rendered against an individual. The two-week trial in Delaware’s Court of Chancery will determine whether Musk, who owned approximately 22% of Tesla at the time of the deal, is that uncommon controlling owner who does not own a majority stake in the company. “I think the court will find it difficult to overlook the fact that Elon Musk is Elon Musk and his affiliation with Tesla,” said Ann Lipton, a law professor at Tulane University. Given Musk’s celebrity status, his personal relationships to Tesla board members, and those board members’ financial ties to SolarCity, she believes the case presents an uncommon situation. “When you add it all together, you might be able to count as a controlling shareholder,” she said. Musk, who is known for teasing regulators, battling critics, and directly connecting with his 57 million Twitter followers, is one of the most powerful executives in the world. Tesla’s 2020 annual report stated, “We are largely dependent on the services of Elon Musk, Tesla’s Technoking and our Chief Executive Officer.” Plaintiffs claim that Musk was the driving force behind the discussions, including pressuring Tesla’s board of directors to raise, not lower, the price for SolarCity. According to court filings, a higher price benefited Musk, who was SolarCity’s top shareholder with a 22 percent interest, as well as four members of Tesla’s board who owned SolarCity stock directly or indirectly. Last year, board members paid $60 million to resolve claims against them, but they did not admit any wrongdoing. The deal also allegedly benefited two of Musk’s cousins who created SolarCity, salvaging a firm that was rapidly running out of cash, according to the plaintiffs. Musk has stated that he was “completely recused” from board deliberations and that shareholders approved the transaction since it was a key component of his “Master Plan, Part Deux,” which intends to mix sustainable solar energy with self-driving automobiles. He has stated that what the plaintiffs perceive as evidence of control is merely good management. “Taken to its logical conclusion,” Musk’s lawyers said in a court filing, “almost all ‘hands-on’ and ‘inspirational’ CEOs with minority equity ownership would be deemed controllers.” According to legal experts, if Vice Chancellor Joseph Slights concludes Musk was a controlling stakeholder, Musk will have to prove the SolarCity deal satisfied the high threshold of the “entire fairness” criterion, which includes process and pricing. In court papers, Musk stated that the SolarCity transaction was a big success for Tesla stockholders, proving that the deal was not only fair, but also beneficial. Tesla’s stock has soared to $652 a share on Thursday after a 5-1 stock split in 2020. It was about $37 a share when the deal finalized in November 2016. “If the vice chancellor feels this arrangement is bad and wasn’t negotiated successfully on behalf of the company, he’ll strike it down,” said Larry Hamermesh, a Delaware Law School professor. Tom Hals in Wilmington, Delaware, and Sierra Jackson in New York contributed reporting, while Noeleen Walder and Dan Grebler edited the piece. The Thomson Reuters Trust Principles are our standards./nRead More

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