Elon Musk defends SolarCity deal, says he’s Tesla boss: “I rather hate him”
WILMINGTON, Delaware – Tesla Inc.
CEO Elon Musk was in court on Monday defending the purchase of SolarCity Corp. by the company, telling a judge he hadn’t acted inappropriately during the negotiation process and didn’t even like leading the electric vehicle maker.
The case dates back to 2016, when Mr. Musk was chairman of both companies, both unprofitable at the time. His solution: combine them in a partnership of about $ 2.1 billion to create a single clean energy company. The plaintiffs, which include pension funds that owned Tesla shares, called the deal a ploy to get out of the woods and bail out a solar power company on the brink of insolvency.
Mr. Musk, the opening witness and the only witness on the first day of a trial without a jury in Delaware Chancellery Court, is scheduled to return to the stand on Tuesday. He defended his actions in about five hours of testimony, saying the purchase of SolarCity was crucial to the sustainable energy strategy he had envisioned for Tesla for a decade.
“I don’t think SolarCity has had any financial problems,” Mr. Musk said. “To have a compelling product, you really needed a tightly integrated solar and battery solution. And we couldn’t create a well-integrated product if SolarCity were a separate company.
A main question in the case is whether Mr. Musk, who owned around 22% of Tesla at the time, was in control of the transaction. Proving the claim is a challenge as Mr. Musk was a minority shareholder in Tesla and the company’s shareholders approved the acquisition. Lawyers for Mr Musk have said SolarCity was worth more than Tesla paid for it and that members of the board of directors of the electric vehicle maker, including Mr Musk’s brother Kimbal Musk, acted as independently.
The billionaire CEO, who has a track record of sometimes brutal and surprising statements, said on Monday that he doesn’t like being Tesla’s boss. “I hate it and would much prefer to spend my time on design and engineering, which is inherently what I love to do,” he said.
Mr Musk made the comment after opposing attorney attempted to show how his “willpower” and faith in his vision for Tesla’s future exemplified his ability to control the SolarCity transaction.
Other questions put to the judge included whether Tesla’s board members, some of whom were also shareholders of SolarCity personally or through investment funds they managed, were in conflict. and whether vital information about the deal was withheld from shareholders. Mr Musk testified that an independent director handled the negotiation and that Tesla’s directors even rejected his proposal that Tesla would provide temporary funding to SolarCity before the deal was made.
Mr. Musk spoke in a calm and at times calm tone when answering questions from his lawyer. He became more energetic when he answered questions from Randall Baron, a lawyer for the plaintiffs. Mr Baron asked Mr Musk if he dominated Tesla, handpicked his board members, and made decisions without director input.
Mr Musk has previously displayed flashes of his sometimes combative nature in the case, making a confrontational witness in a 2019 deposition, calling Mr Baron “reprehensible” for “attacking sustainable energy.”
To explain the behavior, Mr Musk told the court he did not respect Mr Baron because the lawyer had previously worked at a law firm whose partners got engulfed in an ethics scandal and went to jail. for their misdeeds. “I think you are a bad human being,” Mr. Musk told Mr. Baron.
Mr Baron asked Mr Musk why SolarCity’s performance varied significantly from the projections Tesla gave to shareholders in 2016. Mr Musk blamed the decline in solar panel installation and market share on Tesla’s urgent need to focus on developing its Model 3 car in 2017 and 2018. At the time, Tesla was struggling to bring the car to market.
“These were the toughest three years of my entire career,” he said, later calling the period atrocious. “The company was in dire straits. Most of the time I thought we were out of the woods, we weren’t.
More recently, Mr Musk said, the coronavirus pandemic has hampered Tesla’s ability to obtain permits for residential solar installations.
If Mr. Musk loses, we could ask him to fix Tesla. That payment could equal the value of the SolarCity transaction if the court president finds the solar company to be worthless when Tesla agreed to buy it.
The trial has been delayed for more than a year due to the pandemic and is expected to last two weeks.
Other members of Tesla’s board at the time of the merger agreed to settle a combined $ 60 million last year, paid for by insurance. Board members, some of whom had interests in both Tesla and SolarCity, denied the wrongdoing.
Mr Musk presented the proposed deal to Tesla’s board in early 2016, court records show. The plaintiffs describe SolarCity as having experienced serious financial difficulties prior to the transaction, risking stumbling over a debt commitment and without other fundraising options. Shareholders were not fully informed of the state of the company, they say.
Mr Baron made the point on Monday, asking Mr Musk about internal emails and meetings that discussed efforts to save money by delaying supplier payments and other moves. The lawyer also asked if he knew that Lazard Ltd.
Bankers had attempted to raise funds for SolarCity in 2016 and found that most private investors surveyed were unresponsive.
Mr Musk said Tesla sometimes took such steps to save money as well. He said SolarCity could have raised funds from private investors if it had had more time to do so and ultimately could have sold shares to public investors.
If Chancellor Court Vice-Chancellor Joseph Slights III, the presiding judge, finds that Mr Musk has not checked the case, the case is likely over for the plaintiffs, said Lawrence Hamermesh, executive director of the University of Carey Law School, Pennsylvania Institute of Law and Economics.
Delaware case law generally relies on the business judgment of independent and duly motivated directors. On the other hand, if the evidence points to a check, the court would assess whether the transaction process and the price were fair and, if not, whether Mr Musk should be ordered to return the money to Tesla, said Mr. Hamermesh.
For Mr. Musk, now among the richest people in the world, the prospect of a loss would likely be more significant than any court-ordered financial judgment, said Seth Goldstein, analyst for Morningstar Research Services LLC.
“You might see the board become very diligent about acquisitions that are not in Tesla’s current and existing industries,” Goldstein said.
Tesla investors have also seen a change in fortunes since the first takeover. The automaker posted its first full year of profits in 2020. The stock, which was trading at around $ 44 when Tesla offered to buy SolarCity, closed on Monday at around $ 686, up 4.38% on the day.
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