Tesla investors think SolarCity was an engineered bailout purchase

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Tesla Inc shareholders requested a judge on Tuesday to find Elon Musk guilty of coercing the company’s board into a 2016 transaction for SolarCity and to force Musk to pay the electric vehicle firm one of the highest judgments in history, totaling $13 billion.

The dispute has always been about whether Elon Musk’s acquisition of SolarCity was a rescue from financial trouble, a bailout, said to Randy Baron, an attorney for shareholders, who testified at the Zoom hearing.

Musk allegedly bullied the Tesla board into accepting the transaction for the cash-strapped SolarCity, in which Musk was the majority shareholder, according to the lawsuit filed by union pension funds and asset managers.

Musk replied that the transaction was part of a ten-year plan to create a vertically integrated firm that would use SolarCity’s roof panels and Tesla’s automobiles and batteries to alter energy generation and consumption.

One of Musk’s lawyers, Evan Chesler, told the committee that the arrangement was not a bailout, that SolarCity was far from bankrupt, and that its finances were similar to those of many high-growth tech companies.

Shareholder attorney Lee Rudy petitioned Delaware’s Court of Chancery Vice Chancellor Joseph Slights to force Musk to return the Tesla stock he got, which is currently worth roughly $13 billion at its current price.

In court papers, Musk opposed the settlement believing it to be at least five times the largest ever in a similar shareholder lawsuit, describing it as a “windfall” for plaintiffs.

Musk’s contempt for the deposition and trial process, in which he regularly battled with and insulted shareholder attorneys, Rudy said, should be taken into account by Slights.

The desire to have Musk return the stock from the deal is “preposterous,” according to Chesler, who claims it ignores Tesla’s five years of exceptional success.

In midday trading, Tesla’s shares were down 1% at roughly $1,040.

Tesla obtained SolarCity as it prepared to debut its Model 3, a mass-market automobile that was key to the company’s strategy. Shareholders claim the deal was a waste of time that burdened Tesla with SolarCity’s debt and financial troubles.

Despite holding only 22% of Tesla, shareholders allege Musk was a majority shareholder due to his links to board members and overbearing demeanor. If plaintiffs can show this, the court will be more inclined to decide that the deal was unfair to shareholders.

Musk’s lawyers said that the celebrity entrepreneur had no authority to terminate directors or determine their salaries and that he had recused himself from the SolarCity deal pricing talks.

Tesla might not exist, let alone have a $1 trillion valuation, if it weren’t for Elon Musk, according to Vanessa Lavely, Musk’s attorney. He isn’t a controller but rather a highly effective CEO.

Slights said at the end of the session that he expects to rule in three months. He announced his retirement plans last week, and related shareholder litigation contesting Musk’s record pay deal was shifted from Slights to another judge.

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