Elon Musk Wins Shareholder Lawsuit Over Tesla’s $2.6 Billion Acquisition of SolarCity

A Delaware court ruled in favor of the defendant. Elon Musk Wednesday in a shareholder lawsuit over TeslaAcquisition of SolarCity for $2.6 billion.

Tesla shareholders claimed that company acquisition of the solar installer amounted to a ransom, pushed by Musk, who sat on the boards of both companies at the time. Shareholders also alleged that Musk controlled Tesla’s board, even though he appeared to recuse himself from some SolarCity-related negotiations.

Had he lost, Musk might have had to pay more than $2 billion. The matter could be appealed to the Delaware Supreme Court.

Vice Chancellor Joseph R. Slights, who decided the case shortly before retiring, sided with Elon Musk, writing: “Elon was more involved in the process than a conflicting trustee should be. And the conflicts between other members of the Tesla Board were not completely neutralized. With that being said, the Tesla Board significantly vetted the Acquisition and Elon did not stand in their way.”

Musk denied pressuring Tesla’s board of directors to go through with the transaction. He also said the merger allowed Tesla to combine its battery business with Solar City’s solar photovoltaic facilities.

During the trial, musk said the SolarCity deal was part of his “master plan,” which he had written in 2006 and was meant to hasten the advent of sustainable energy.

The case was a shareholder derivative action, a lawsuit brought by investors on behalf of a corporation, rather than individuals or funds. If the plaintiffs had won, the proceeds would have gone to Tesla and not to the interested parties who brought the lawsuit.

investors were skeptical of the deal when Tesla proposed it in June 2016, and the stock plunged more than 10% after the announcement.

During his testimony, Musk repeatedly argued that Solar City would have been able to raise capital even if Tesla hadn’t acquired it.

The plaintiffs argued that Musk was only able to gain approval for the SolarCity acquisition by misrepresenting SolarCity’s financial well-being, saying it should be cash flow positive within six months. The plaintiffs argued that other financial experts agreed with that assessment. They also alleged that due diligence from outside companies, including Evercore, rushed to hide SolarCity’s problems.

Shareholders also argued, in the lawsuit, that Musk introduced a product that did not yet work (solar glass roof tiles) to convince investors that there was real intellectual property and a product close to commercial viability in SolarCity.

Slights also acknowledged: “As of the trial, Tesla continued to rely on other solar companies to manufacture, produce, install, and sell parts of its solar products. In other words, the synergistic integration that Tesla hoped for is still a work in progress.” Despite these challenges, Tesla’s value has increased tremendously after the acquisition.”