The trial is laser focused on what role Musk played in pushing his board, and shareholders, to approve it. Investors and pension funds leading the suit allege Musk and Tesla’s board breached legal duties to shareholders when they agreed to a buyout of the then-struggling installer of rooftop solar panels. Musk is the lone defendant. The rest of the board settled for $60 million last year in a deal covered by insurance.
The trial -- delayed more than a year by the pandemic -- is expected to take two weeks. If the judge finds the acquisition was a legitimate, it will be yet another example of Elon Musk largely escaping consequences. If he loses, Musk could be ordered to dig into his own pocket to hand back the roughly $2 billion Tesla shelled out for SolarCity. It would also be a hit to his reputation as a tech titan who nearly always gets his way.
More than a half-dozen disgruntled pension funds that invested in Tesla contend Elon Musk arranged the SolarCity buyout as a bailout for his cousins, Lyndon Rive and Peter Rive, who’d joined with him to form the solar-power provider. They accuse the billionaire -- Tesla’s largest shareholder -- of steamrolling the board into approving the deal.
On the witness stand, Kimbal Musk said he wasn’t aware Evercore and some bankers involved in the deal were taken aback by reports that SolarCity was running on fumes in mid-2016 and was in danger of triggering default provisions if cash reserves dipped below $116 million. He said he didn’t consider that figure to be “a lot of money,” but when it comes to such default provisions, “cash in the bank is what matters.”
The investors who sued are seeking to show Musk’s yen for SolarCity was more about his desire to keep his cousins out of bankruptcy rather than to expand the carmaker’s solar footprint. The billionaire testified Tuesday he always envisioned Tesla as more than an electric-vehicle company and had his sights on SolarCity for a decade before Tesla’s board agreed to snap it up.
Under cross-examination, Elon Musk acknowledged hiring lawyers to shepherd the SolarCity deal and holding daily meetings on the diligence reviews even though Tesla’s board wasn’t interested in the acquisition at the time. Lawyers for the funds harped on the idea no Tesla directors were invited to those meetings. Musk said he wanted to make sure bankers and lawyers “didn’t dawdle” on the review.
“Were you aware that while Evercore wanted to slow down the diligence review, your brother was pushing to speed things up?” Lee Rudy, one of the funds’ lawyers, asked Kimbal Musk. “I was not aware of that,” the Tesla director replied.
After being involved in several other merger and acquisition deals in his career, Kimbal Musk indicated he’d developed a healthy skepticism about the value of bankers’ opinions about buyouts. “I don’t consider bankers to be the best advisers or to be that useful,” he said. “I avoid them whenever I can. Bankers are involved to make a deal happen. I don’t put much stock in what they have to say.”
The case is In Re Tesla Motors Inc. Stockholders Litigation, No. 12711, Delaware Chancery Court (Wilmington).