A Delaware judge on Wednesday sided with Tesla CEO Elon Musk in a lawsuit brought by the electric vehicle maker’s shareholders that accused him of coercing the company’s board into buying SolarCity.
Tesla acquired California-headquartered SolarCity for $2.6 billion in 2016 in a stock-for-stock merger.
The company was founded in 2006 by Musk’s cousins, Peter and Lyndon Rive, and sold and installed solar energy generation systems.
At the time, Tesla stated in its blog that the two companies would create “the world’s only vertically integrated sustainable energy company” and produce “fully integrated residential, commercial and grid-scale products that improve the way that energy is generated, stored, and consumed.”
When it was acquired in 2016, Musk, who served as chairman of the board at both Tesla and SolarCity, owned a large portion of the solar energy entity.
However, Tesla’s shareholders accused the executive of coercing the electric vehicle company’s board into the 2016 purchase of SolarCity while also acting in his own interest, stating that it amounted to a “bailout” of the failing solar company (pdf).
Vice Chancellor Joseph R. Slights also noted in his ruling (pdf) that “conflicts among other Tesla Board members were not completely neutralized” but that “with that said, the Tesla Board meaningfully vetted the Acquisition, and Elon did not stand in its way.”
“Equally if not more important, the preponderance of the evidence reveals that Tesla paid a fair price—SolarCity was, at a minimum, worth what Tesla paid for it,” Slights added.
Shareholders can still file an appeal against the ruling in the Delaware Supreme Court.
Slights did, however, note in his ruling that Musk “likely could have avoided” the case in the first place, “had he simply followed the ground rules of good corporate governance in conflict transactions.”
Shareholders, who said the purchase was the “product of breaches of fiduciary duty and other wrongdoing” were seeking up to $13 billion in damages.
“According to the plaintiffs, as Tesla’s controlling stockholder, Elon caused Tesla’s servile Board to approve the Acquisition of an insolvent SolarCity at a patently unfair price, following a highly flawed process, in order to bail out his (and other family members’) foundering investment in SolarCity,” the lawsuit against Musk reads.
But while the court on Wednesday found that Musk “was more involved in the process than a conflicted fiduciary should be,” it ultimately ruled in favor of the Tesla CEO.
Attorneys for Musk had denied that he used pressure tactics “that went beyond ordinary advocacy to encompass aggressive, threatening, disruptive, or punitive behavior” in order to get the Tesla board to go through with the deal.
In a July 2016 blog post, the Tesla CEO said that the acquisition allowed the company to “create a smoothly integrated and beautiful solar-roof-with-battery product that just works.”
“We can’t do this well if Tesla and SolarCity are different companies, which is why we need to combine and break down the barriers inherent to being separate companies,” he wrote at the time.
Randall Baron, the attorney for the plaintiffs told Bloomberg Law in an emailed statement on Wednesday that the case was about “a simple principle—loyalty to shareholders.”
“The court’s decision recognized there were flaws in the deal approval process and a high degree of involvement from a conflicted fiduciary,” Baron said.
The Epoch Times has contacted a Musk spokesperson for comment.
Meanwhile, Twitter on Monday reached an agreement on Musk’s $44 billion offer to acquire the social media platform.