The decision Wednesday by Delaware Chancery Court Judge
Slights found Musk, who served as SolarCity’s chairman and largest shareholder at the time of the purchase, didn’t jam the deal through at an inflated price. Disgruntled Tesla investors argued SolarCity was insolvent at the time and not worth the money. They also said Musk failed to properly remove himself from the deal’s details.
“The preponderance of the evidence reveals that Tesla paid a fair price -- SolarCity was, at a minimum, worth what Tesla paid for it, and the acquisition otherwise was highly beneficial to Tesla,” Slights said in his 131-page ruling.
Still, the judge faulted Musk for failing to properly remove himself from involvement in the deal, while concluding it wasn’t a fatal flaw in the transaction.
The Delaware Supreme Court will probably be asked to review the ruling.
“This case was about a simple principle -- loyalty to shareholders,” he said in an emailed statement. “The court’s decision recognized there were flaws in the deal approval process and a high degree of involvement from a conflicted fiduciary.”
The ruling burnishes Musk’s reputation as a free-wheeling entrepreneur who relishes going against the grain as he runs the world’s largest maker of electric cars, and spares the billionaire what could have been a substantial ding even to his vast personal fortune. It also may reinforce the nickname “Teflon Elon,” for winning a case many thought he’d lose.
“I’m a little surprised,” said
Musk, 50, has an estimated net worth of
In the SolarCity case, investors accused Musk of cattle-prodding Tesla directors to sign off on the buyout “at a patently unfair price, following a highly flawed process, in order to bail out” himself and family members, Slights said. The judge found instead that the price paid for the solar-power provider was “entirely fair.”
But Slights wrote that Musk’s actions -- such as lining up deal lawyers and overseeing due diligence -- were causes for concern in judging the deal’s fairness. Musk had interests on both sides of the acquisition and was required under Delaware law to step away from it, the judge said.
“The process employed by the Tesla board to negotiate and ultimately recommend the acquisition was far from perfect,” he wrote. “Elon was more involved in the process than a conflicted fiduciary should be. And conflicts among other Tesla Board members were not completely neutralized.”
In the end, Musk’s actions didn’t taint the deal, Slights said. “The Tesla Board meaningfully vetted the acquisition, and Elon did not stand in its way,” he wrote.
The ruling will give comfort to mergers and acquisitions lawyers defending the fairness of future deals, said
Still, the ruling by Slights may fuel longstanding criticism that Delaware’s Chancery Court -- the premier venue for U.S. corporate disputes -- is too friendly to companies and the rich people who run them.
“You get what you pay for in Delaware, that’s for sure,” said
Diamond said the ruling reinforces the notion that the Chancery Court is pro-company and shows there is no control over the “billionaire class” in the U.S.
Musk was the only Tesla director to challenge the investors’ claims in court. His board colleagues agreed to a $60 million
In a colorful and sometimes irreverent stint on the witness stand during the trial last year in Wilmington, Delaware, Musk testified he tried to be helpful to the board as it weighed the deal but never sought to steamroll it.
“To be honest, I don’t want to be the boss of anything,” Musk testified. “I don’t want to be CEO. I tried not to be CEO of Tesla, but I had to or it would die. I rather hate being a boss. I’m an engineer.”
Musk sparred repeatedly with Baron over the course of about eight hours on the witness stand, at one point telling the lawyer he was a “bad human being” and saying his questions were “deceptive.”
The case is In Re Tesla Motors Inc. Stockholders Litigation, 12711, Delaware Chancery Court (Wilmington).
(Add details from Musk’s trial testimony. A previous version of this story corrected Charles Elson’s title in the ninth paragraph.)
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