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All Tesla Directors But Musk Settle Investors’ SolarCity Suits

Jef Feeley and Dana Hull

(Bloomberg) -- All Tesla Inc. directors except Chief Executive Officer Elon Musk agreed to a $60 million settlement to resolve shareholder lawsuits over the company’s purchase of SolarCity, according to court filings.

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 Wednesday, declining to be identified because they aren’t authorized to speak publicly about the deal.

Musk and the board were accused of duping investors in 2016 into backing the $2 billion buyout of the solar-panel installer, which was co-founded by Musk and his cousins. Critics of the deal called the acquisition a bailout of SolarCity and questioned the company’s corporate governance.

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

Read Businessweek’s story on Musk’s solar promises

The settling defendents are directors who were on the board in 2016: Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Stephen Jurvetson and Kimbal Musk, according to a filing in Delaware Chancery Court. Since then, the composition of Tesla’s board has changed: Buss, the former chief financial officer of SolarCity, is no longer on the board, while Larry Ellison and Kathleen Wilson-Thompson joined the board in December 2018.

Tesla and Denholm didn’t respond to requests for comment Wednesday on the partial settlement. In earlier court filings, Tesla officials defended the directors’ work in reviewing the SolarCity deal, claiming that “both the process and the price of this acquisition were inherently fair to Tesla’s stockholders.”

The settlement comes as Tesla turns a corner with back-to-back reports of better-than-expected earnings, which have sent shares soaring. The stock gained 10.3% in New York.

The accord leaves Musk, Tesla’s largest shareholder, to battle alone against investors who complain the billionaire overpaid for SolarCity, and that directors rolled over instead of properly scrutinizing the deal. Judge Joseph Slights III will hear the case in Wilmington without a jury, which is normal in the Chancery Court. The 10-day trial is scheduled begin March 16, according to a filing.

Read more on Tesla’s earnings here

In court filings made public Thursday, lawyers for Tesla’s board said if Slights rebuffs the company’s efforts to have the case thrown out, “Mr. Musk intends to proceed to trial and defend against the claims asserted against him.” Investors’ lawyers noted in their own filing that the partial settlement won’t affect the length of the March trial.

Musk, 48, painted the SolarCity deal as a no-brainer that would combine the leading U.S. electric-car maker with what was then the largest provider of rooftop solar panels.

Tesla now has roughly 400,000 solar customers, one of the biggest U.S. renewable-energy portfolios. It ran into a stumbling block when Walmart Inc. sued last year, 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 emails unsealed as part of the investors’ suits.

In one email, 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. Headmitted in a pre-trial deposition 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.”

The case is In Re Tesla Motors Inc. Stockholders Litigation, No. 12711, Delaware Chancery Court (Wilmington).

(Updates with details from court filings in ninth paragraph.)

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net;Dana Hull in San Francisco at dhull12@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Peter Jeffrey

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