Legal hurdle trips up Musk in $2.6B Tesla-SolarCity deal
Billionaire tech entrepreneur Elon Musk’s bad month just got worse — courtesy of a new Delaware Chancery Court decision.
Investors in Musk’s Tesla electric-car company may press on with their lawsuit that challenges the firm’s 2016 acquisition of SolarCity on grounds that the $2.6 billion deal was flawed by potential conflicts of interest involving Musk and other company directors, the court ruled late Wednesday.
The investors provided sufficient evidence to prove it was “reasonably conceivable” that Musk, though a minority stakeholder in his electric-car company, “controlled the Tesla Board in connection with the acquisition,” Vice Chancellor Joseph Slights wrote.
In what he characterized as a close legal call, Slights denied Tesla’s motion to dismiss the lawsuit and allowed the legal battle to continue. The ruling means the case will continue to be a financial and legal challenge for Musk.
“We do not agree with the decision and will be taking appropriate next steps,” Tesla said in a statement responding to the decision. “It’s important to emphasize that this was a motion to dismiss in which the court was required to assume as true all of the allegations that are made in the complaint. We, of course, contend the allegations in the complaint are false.”
The decision came during a month in which Musk and Tesla are coping with a crisis sparked by a fatal crash in California involving one of the company’s Model X cars. Shares of Tesla are down 7% from this time last year and are 17.2% lower year-to-date. The stock was up 2.3% at $263.74 in Thursday afternoon trading, reversing earlier losses.
The Delaware court ruling focuses on Tesla’s controversial acquisition of SolarCity, a solar energy system installer in San Mateo, Calif., founded by Musk and his cousins, Peter and Lyndon Rive.
At the time of the deal, Musk owned approximately 22.1% of Tesla’s stock, records in the court case showed. He also chairs Tesla’s board, serves as the chief executive officer and is the company’s chief product architect.
Musk served as chairman of SolarCity’s board since the company’s 2006 formation and held roughly 21.9% of the firm’s stock before the proposed acquisition by Tesla, the court records show.
Tesla investors cited potential conflicts involving some of the company’s other directors, who endorsed the SolarCity acquisition. The officials include Kimbal Musk, Elon Musk’s brother and cousin of Lyndon and Peter Rive. At the time of the proposed acquisition, he beneficially owned 147,541 shares of SolarCity stock, records in the lawsuit show.