Tesla CEO Elon Musk’s due diligence was up for debate on day six of a trial examining whether he breached his duties to the company and its shareholders in Tesla’s acquisition of SolarCity Corp, a company which was owned by two of his cousins.
The ten day trial — which follows a class action lawsuit that alleges Musk orchestrated a bailout of SolarCity at a time when it was allegedly facing insolvency and covenant defaults — is being held before Vice Chancellor Joseph R. Slights III in Delaware, Law360 reports.
When Evercore Partners LLP Senior Managing Director Courtney McBean said she believed the board recommended including Musk in daily calls with Evercore “because of his relationship with SolarCity,” attorney for Tesla Inc. stockholders Lee D. Rudy, of Kessler Topaz Meltzer & Check LLP, asked her whether she was “making up” the details.
“You’re making this up right now, right?” Rudy said.
“You agree there’s no minutes of any Tesla board meeting instructing Mr. Musk to join a daily call with the Evercore team to push along the diligence.”
Rudy also questioned whether Tesla had considered buying another rooftop solar business to round out its goal of becoming a carbon-free, sustainable energy, and car company, Law360 reports.
“Now that you understand that your initial view of SolarCity as a market leader with vertical integration maybe has a lot of rot underneath it, did you or anyone at Tesla consider going to another solar company?” Rudy asked, given at the time of acquisition SolarCity was allegedly facing insolvency and covenant defaults.
“I disagree with the characterization of it as rot,” McBean responded. “The strategic rationale was intact. Liquidity issues were taken into account when negotiating price.”
McBean added later that “the combination of solar and [electricity] storage is compelling, and they were able to get this company at a very good price.”
Tesla, Evercore, and SolarCity’s former CEO all argue that SolarCity never triggered a default despite a dearth of cash throughout much of 2016.
SolarCity Co-founder and former CEO Lyndon Rive, who is also Musk’s cousin, said SolarCity’s financial issues began in 2015 when state-level pressure for regulatory actions that were hostile to rooftop solar companies and consumers were pushed by traditional electric utilities, Law360 reports.
In early 2016, Musk reached out to buy the company, Rive said. He added that to solve solvency issues until the acquisition was approved — which happened on July 31 — he sold $116 million in “solar bonds,” or clean energy revenue bonds. $65 million of those were bought by Musk, $35 million went to Rive and another relative, and public investors bought the remainder.
The stockholders in the SolarCity class action lawsuit say that Musk, who was chairman of the board at the time, controlled Tesla despite having only 22% of its equity and they are demanding billions in damages for his alleged breaches in his duties.
What do you think about Tesla acquiring a company owned by CEO Elon Musk’s cousins that was allegedly facing insolvency? Let us know in the comments section!
The stockholders are represented by Jay W. Eisenhofer, Christine M. Mackintosh, Kelly L. Tucker, Vivek Upadhya and Daniel L. Berger of Grant & Eisenhofer PA; Lee D. Rudy, Eric L. Zagar, Justin O. Reliford and Matthew C. Benedict of Kessler Topaz Meltzer & Check LLP; and Randall J. Baron, David T. Wissbroecker and Maxwell R. Huffman of Robbins Geller Rudman & Dowd LLP.
Musk is represented by David E. Ross, Garrett B. Moritz and Benjamin Z. Grossberg of Ross Aronstam & Moritz LLP; and Evan R. Chesler, Daniel Slifkin, Vanessa A. Lavely and Helam Gebremariam of Cravath Swaine & Moore LLP.
The Tesla SolarCity Acquisition Class Action Lawsuit is In re: Tesla Motors Inc. Stockholder Litigation, Case No. 12711, in the Court of Chancery of the State of Delaware.
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