Picture: REUTERS/MIKE BLAKE
Picture: REUTERS/MIKE BLAKE

Wilmington/San Francisco — All Tesla directors except CEO Elon Musk agreed to a $60m settlement to resolve shareholder lawsuits over the company’s purchase of SolarCity, according to people familiar with the deal.

Insurers covering Tesla’s directors and executives will foot the bill as part of a so-called derivative settlement, two people familiar with the accord said on Wednesday, declining to be identified because they aren’t authorised to speak publicly about the deal.

Musk and the board were accused of duping investors in 2016 into backing the $2bn buyout of the solar-panel installer, which was cofounded by Musk and his cousins.

Pension funds that objected to the deal are likely to press ahead with a March trial against Musk over his alleged failure to disclose SolarCity was in deep financial trouble when he urged shareholders to back the buyout.

Of Tesla’s nine directors, only four are holdovers from when the company acquired SolarCity: Musk, who was forced to step down as chair in 2018; his brother, Kimbal Musk; and venture capitalists Ira Ehrenpreis and Steve Jurvetson.

Tesla representatives and chair Robyn Denholm didn’t respond on Wednesday to requests for comment on the partial settlement. Details of the settlement are to be made public on Thursday in Delaware Chancery Court.

In earlier court filings, Tesla officials defended the directors’ work in reviewing the SolarCity deal, claiming “both the process and the price of this acquisition were inherently fair to Tesla’s stockholders”.

Critics of the deal called it a bailout for SolarCity and said it raised questions about the Musk-led company’s corporate governance. Tesla added independent directors after some shareholders complained its board was too closely tied to the CEO.

The settlement comes as Tesla reported better-than-expected revenue and the accelerated arrival of its next electric vehicle, sending shares soaring in after-hours trading Wednesday. The Model 3 maker’s $7.38bn in fourth-quarter sales carried the company to its second consecutive quarterly profit.

The accord leaves Musk, Tesla’s largest shareholder, to battle alone against investors who complain the billionaire overpaid for SolarCity and directors rolled over, instead of properly scrutinising the deal. Judge Joseph Slights III will hear the case in Wilmington without a jury, which is normal in the Chancery court.

Musk painted the SolarCity deal as a natural for clean-energy customers, merging the US’s top electric-car maker with what was then the largest provider of rooftop solar panels.

Tesla now has about 400,000 solar customers, one of the US’s biggest renewable-energy portfolios. It ran into a stumbling block when Walmart sued it in 2019, saying the company’s rooftop panel systems caused fires at stores and warehouses. The companies later reached a settlement.

Efforts to integrate SolarCity coincided with Tesla struggling to ramp up production of its all-electric Model 3 sedan, and that put the company under financial pressure, Musk acknowledged in e-mails unsealed as part of the investors’ suits.

In one e-mail, Musk said he was forced to shift SolarCity workers to help with Model 3 production issues. If he hadn’t done that, Tesla would have faced bankruptcy, he said. He admitted in a pretrial deposition that he probably wouldn’t make the same deal again.

“At the time I thought it made strategic sense for Tesla and SolarCity to combine. Hindsight is 20/20,” he said. “And if I could wind back the clock, you know, I would say I probably would have let SolarCity execute by itself; would have let Tesla execute by itself.”

Bloomberg 

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