Elon Musk defends Tesla’s $2.6B acquisition of SolarCity in Delaware court – TechCrunch

Elon Musk defends Tesla’s $2.6B acquisition of SolarCity in Delaware court – TechCrunch

Elon Musk is testifying Monday morning in a lawsuit over Tesla’s 2016 acquisition of SolarCity, a $2.6 billion transaction that a group of shareholders allege was a “bailout” of the failing solar company. The shareholders are seeking repayment to Tesla of the cost to purchase SolarCity.

The suit, filed in the Delaware District Court in 2017, alleges that SolarCity was near bankruptcy at the time of the acquisition. Musk, who was the ailing company’s chairman of the board of directors and its largest stockholder, directly benefited from the transaction, as did some of his friends and family, the lawsuit alleges. SolarCity’s founders, Lyndon and Peter Rive, are Musk’s cousins.

SolarCity “had consistently failed to turn a profit, had mounting debt, and was burning through cash at an unsustainable rate,” the plaintiffs say. The suit goes on to note that the company had accumulated over $3 billion in debt in its 10-year history, nearly half of which was due for repayment before the end of 2017. The purchase by Tesla was approved by vote by 85% of shareholders.

Attorneys for Musk say that the acquisition was part of the CEO’s longer-term vision to transform Tesla into a transportation and energy company. In a blog post titled “Master Plan, Part Deux,” published to Tesla’s website around the time of the deal’s closing, Musk says that combining SolarCity and the electric vehicle startup was key to realizing his vision of combining Powerwall (Tesla’s home and industry battery storage product) and solar roof panels.

In his testimony Monday, Musk said Tesla was forced to shift focus away from its solar business to meet production deadlines for the Model 3 sedan, The Washington Post’s Will Oremus tweeted from outside the courtroom. USA Today reporter Isabel Hughes, also at the courtroom, tweeted that Musk blamed the pandemic for poor performance of the company’s solar division. He was being questioned by attorney for the plaintiffs Randall Baron, whom Musk called “a shameful person” at a 2019 deposition.

Musk’s lawyers say that he recused himself from board discussions and negotiations relating to the acquisition — but the plaintiffs maintain that the recusal was “superficial.” A primary question for the court will be whether Musk exerted undue influence over the transaction, and whether he and other board members concealed information relating to the transaction from shareholders.

The other board members named in the suit — Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Kimbal Musk and Stephen Jurvetson — settled for $60 million last year, plus $16.8 million in legal fees and expenses, paid for by insurance. The trial, with Musk as the sole defendant, was postponed a year due to the coronavirus pandemic.

The trial is expected to last 10 business days. The Delaware Court of Chancery, where the suit is being heard, does not have a jury; instead, the case will be heard by judge Vice-Chancellor Joseph Slights III. Even if Slights finds that the deal was improper, he could order Musk to pay far less than the $2.6 billion that Tesla paid for SolarCity at the time.

Sparks fly in New Castle County courtroom as Elon Musk defends 2016 SolarCity purchase

Elon Musk was quietly whisked into the New Castle County Courthouse Monday morning, evading a gaggle of press anxiously awaiting his arrival in connection with a lawsuit over Tesla’s 2016 acquisition of a solar panel manufacturing company.

What was lacking in any grand entrance, however, was made up for inside the seventh floor courtroom, where the Tesla CEO sparred with the lead attorney in the shareholder lawsuit.

The suit claims that Tesla’s accession of SolarCity was rife with conflicts of interest, intended to bail out the faltering company but failed to produce the profits Musk had promised.

At the time of the all-stock purchase, estimated at about $2.6 billion, Musk was SolarCity’s largest stakeholder and its chairman. His cousins Lyndon and Peter Rive had founded SolarCity in mid-2006 – a connection plaintiffs call a clear conflict of interest.

Last August, a judge approved a $60 million settlement that resolved claims made against all the directors on Tesla’s board except Musk without any admission of fault. That left Musk, who refused to settle, as the sole remaining defendant. This trial had been scheduled for March of last year but was postponed because of the COVID-19 pandemic.

Sitting on the witness stand in a black suit and tie Monday morning, Musk demurely defended the purchase, telling his attorney, Evan Chesler, he received no financial gain from it.

“It was a stock-for-stock transaction and I owned almost exactly the same percentage of both,” Musk said.

He added that had it been a cash sale, he would have benefited.

BACKGROUND:Elon Musk expected to testify this week in shareholder lawsuit in Wilmington courthouse

While the proceedings moved quickly as Musk told Chesler that his goal, since founding Tesla, has been to create a “sustainable energy future,” the pace substantially slowed when Randall Baron, the lead attorney for the plaintiffs, questioned Musk.

For much of the first 30 minutes of cross-examination, Musk blamed the coronavirus pandemic for the poor performance of what was formerly SolarCity. He argued it hasn’t had the chance to become successful due to Tesla and other offices being shut down.

His drawn-out explanations to straightforward questions frustrated Baron, who largely asked yes-or-no questions of the CEO. When the attorney told Musk he didn’t need to elaborate on every answer, saying it would draw out Monday’s testimony longer than it needed to go, Musk replied: “I’m OK with that."

“Your questions are really tricky and deceptive,” Musk added.

That back-and-forth was just the beginning of tensions between the two.

In late morning, the proceedings devolved into why Musk had been “derisive” to Baron in a previous deposition.

When Baron asked why Musk had acted in such a manner, Musk replied: “I think you are a bad human being."

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Baron was unable to get too particularly far in his line of questioning due to Musk’s long answers, which continually frustrated the attorney.

The trial, which resumed after an hour-long lunch break Monday afternoon, is expected to last 10 days.

If Musk loses the suit, he will have to pay more than $2 billion. The ruling would rank as the largest judgement ever against an individual corporate executive.

This is a developing story. Return to delawareonline.com for updates.

The Associated Press contributed to this report.

Send story tips or ideas to Isabel Hughes at ihughes@delawareonline.com or 302-324-2785. For all things breaking news, follow her on Twitter at @izzihughes_

Tesla Founder Elon Musk Appears In Delaware Court To Defend Company’s 2016 Acquisition Of SolarCity Against Lawsuit

WILMINGTON, Del. (AP) — Tesla founder Elon Musk took to a witness stand Monday to defend his company’s 2016 acquisition of a troubled company called SolarCity against a lawsuit that claims he’s to blame for a deal that was rife with conflicts of interest and never delivered the profits he’d promised. And to the surprise of no one, the famously colorful billionaire did so in the most personally combative terms.

“I think you are a bad human being,” Musk told Randall Baron, a lawyer for shareholders who was pressing Musk to acknowledge his mistakes in helping engineer the acquisition of SolarCity, a manufacturer of solar panels.

“I have great respect for the court,” Musk later added, “but not for you, sir.’’

The long-running shareholder lawsuit asserts that Musk, who was SolarCity’s largest stakeholder and its chairman, and other Tesla directors breached their fiduciary duties in bowing to Musk’s wishes and agreeing to buy the company. In what the plaintiffs call a clear conflict of interest, SolarCity had been founded by Musk and two of his cousins, Lyndon and Peter Rive.

In the Delaware Court of Chancery on Monday, Baron sought to establish that Musk has sought to run Tesla without interference and therefore bears responsibility for any failures. The lawyer showed a video clip in which Musk said he liked running his own companies because he doesn’t want anyone to make him do what he doesn’t want to do.

As an example of what he characterized as Musk’s imperious management style, Baron mentioned that the CEO once declared himself “Technoking of Tesla’’ and gave his chief financial officer the title “master of coin’’ — a reference to HBO’s “Game of Thrones” — in a filing with the Securities and Exchange Commission.

The hostility between the billionaire CEO and the plaintiffs’ lawyer dates to at least 2019 and a deposition in which Musk insulted Baron and questioned his professionalism. On Monday, Baron played clips from that deposition to try to portray Musk’s stance toward what he might regard as criticism.

Pushing back, Musk insisted Monday that “I don’t want to be the boss of anything.”

“I prefer to spend my time on design and engineering,’’ he said.

Musk, who is well-known for rejecting skepticism of himself or his company, insisted that he welcomes criticism:

“If I’m mistaken,” he said on the witness stand, “I view critical feedback as a gift.’’

Musk said his off-beat titles and other quips simply reflect his sense of humor.

“I think I’m funny,’’ he offered.

What’s more, he said, the resulting media attention often plays to Tesla’s benefit.

“If we’re entertaining, people will write stories about us,” and the company can save on advertising.”

Regarding Tesla’s all-stock acquisition of SolarCity, Musk asserted that he had nothing to gain financially from it because he owned shares of both companies.

Musk also argued that SolarCity’s failure to meet aggressive sales forecasts and its loss of market share were only temporary setbacks. He said they reflected his decision to divert Tesla resources toward salvaging production of the Tesla Model 3 electric car — and then running “headlong into a pandemic.’’

The effort to salvage Tesla 3 was “all-hands-on-deck’’ operation — so desperate that even the company’s lawyers were enlisted in the effort, Musk said, drawing laughter in the court.

Musk’s defense noted that SolarCity had been in Tesla’s plans as early as his 2006 master plan for the electric carmaker. In saying so, he asserted that the joining of the companies 10 years later wasn’t an emergency bailout as the plaintiffs have alleged.

But Baron pointed out that the 2006 document mentioned only a potential marketing arrangement, not a full-fledged merger or acquisition, between Tesla and SolarCity.

Seven shareholder lawsuits, consolidated into one, alleged that Tesla directors breached their fiduciary duties in bowing to Musk’s wishes and agreeing to buy the struggling company. Last August, a judge approved a $60 million settlement that resolved claims made against all the directors on Tesla’s board except Musk without any admission of fault. That left Musk, who refused to settle, as the sole remaining defendant. The trial that begins Monday had been scheduled for March of last year but was postponed because of the viral pandemic.

Daniel Ives, an analyst at Wedbush Securities, has called the acquisition a “clear black eye” for Musk and Tesla, in large part because SolarCity has failed to turn a profit.

“It basically was putting good money after bad,” Ives said. “For all the successes and all of the unimaginable heights Musk has achieved, this is one of the lowlights.”

Even if the trial ends with Musk having to pay personally for the whole SolarCity deal, $2.5 billion won’t much hurt the world’s third-wealthiest person. Forbes magazine has estimated that Musk is worth roughly $163 billion.

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