Alon Musk, CEO Tesla , Will come to court tomorrow (Monday) to defend the 2016 acquisition of SolarCity for $ 2.6 billion. Shareholders sued Musk, claiming that Tesla had paid too much for the company.
CNBC reports that if Musk loses the lawsuit, he may have to pay over $ 2 billion of his personal fortune.
The CEO of Tesla will be the first witness in the lawsuit, and he is expected to defend his part in formulating the deal. Musk insisted he was “completely exempt” from the negotiations that led to the deal.
Of the defendants, Musk is the only one who was in no hurry to reach a settlement
The members of the board of directors that appear in the statement of claim reached a $ 60 million settlement with the shareholders last year, without admitting to causing injustice. Musk, the second richest man in the world, was the only defendant who chose to take the fight to court.
There is no jury to rule on the matter – Musk’s fate will be determined by Delaware’s vice president of justice, Judge Joseph Slates.
This is not the first sentence that Musk gets involved in. In 2018, he was sued by the U.S. Securities and Exchange Commission (SEC) for fraud, and after a compromise Musk and Tesla paid $ 20 million each. As part of the terms of the arrangement, he was forced to temporarily relinquish his position as chairman of Tesla.
Tesla and Musk are facing numerous other lawsuits, including a lawsuit over his unprecedented compensation package and a number of federal investigations. In the case of Solar City, the judge will have to decide whether Musk met the “absolute fairness test” when it came to acquiring the company. In other words – the judge will examine whether Musk acted in favor of Tesla shareholders, and whether he told them everything they deserved to know.
If Musk loses the lawsuit, the proceeds from it may go back to Tesla and not to the shareholders who filed it.
According to the lawsuit, at the time of the transaction, Musk held 22.1% of Tesla’s shares and 21.9% of Solar City’s shares. At the time, Solar City was a problematic asset and a loser in the solar panel installation market.
Musk’s attorneys are expected to argue that the deal did not harm shareholders at all, and that they themselves voted overwhelmingly for its approval. Shares of Tesla jumped from a price of $ 43.9 on June 21, 2016, when the company announced it intends to acquire Solar City, to a price of $ 656.9 on July 9, 2021.
Musk knew about Solar City’s financial situation at the time of talks to buy it
Solar City was founded by the cousins of Alon Musk, Lyndon and Peter Reeve, and they run it to this day. The two were backed by Musk, who serves as chairman of the board. SpaceX, Musk’s space venture, invested $ 255 million in Solar City bonds from March 2015 to March 2016.
Four of Tesla’s board members were direct or indirect owners of Solar City shares at the time of the company’s acquisition, and several Tesla board members held SpaceX shares and were also members of its board of directors.
In June 2016 Musk announced that Tesla would offer $ 2.8 billion for the acquisition of Solar City. “I do not think it creates any additional financial risk for Tesla,” he said, calling the merger “obvious.” Tesla investors doubted this, and the share price then fell more than 10%.
As previously reported on CNBC, legal documents, including email exchanges between Musk and Solar City, revealed that he knew Solar City was facing a “liquidity crisis”, even while Tesla was working to acquire the company.
The trial is set to begin tomorrow in Wilmington, Delaware, and is expected to last until July 23, unless the parties reach a settlement before it ends.