Tesla Chief Executive Officer Elon Musk said he was involved in some discussions about the $2.6 billion acquisition of SolarCity in 2016, though he recused himself from a board vote approving the initial offer.
Musk made the disclosure when he was questioned under oath by lawyers for pension and investment funds that claim he duped investors into backing the buyout of the solar-energy company that was founded by his cousins and where he was the chairman and largest shareholder.
“I could not be recused from all discussions,” Musk said in the deposition, according to a filing last week in Delaware Chancery court. “I needed to voice my opinion, obviously.”
The shareholders’ filing refers to the deposition and includes some quotes from Musk, but doesn’t include the transcript. The filing is also heavily redacted, with large portions blacked out.
The shareholders claim in the three-year-old lawsuit that SolarCity was basically insolvent when the companies publicly announced plans to merge in June 2016 and not worth the price ultimately negotiated by Tesla’s “conflicted fiduciaries.”
They say they’ll prove that at trial. In the meantime they asked the judge to rule that Tesla has the burden to show the deal was fair and can’t rely on the argument that stockholders approved the transaction.
More than 85% of the company’s stockholders voted to back the acquisition of SolarCity, but pension funds that opposed the buyout accuse Musk of wrongly inflating SolarCity’s value.
Tesla’s board first heard about Musk’s proposal to buy SolarCity at an emergency board meeting in late February 2016. At the time, Musk was SolarCity’s chairman and largest shareholder; his cousin Lyndon Rive was SolarCity’s CEO, and the boards of the two companies were far from independent.
Raising equity or taking on additional debt wasn’t an option for SolarCity, which installed solar panels on homes and businesses.
“If [banks] think you’re running low—dangerously low on cash, then they don’t want to give you cash,” Musk said. “But if they think you’ve got plenty of cash, they want to give you cash. It’s ironic.”
The lawyers for Tesla’s board said that an independent financial adviser, Evercore, presented a detailed evaluation of four potential solar acquisition targets: SolarCity, Vivint Solar, Sunrun, and SunPower, but concluded that “SolarCity is the most attractive asset for Tesla in the solar market.”
Attorneys for the board also stressed that Robyn Denholm, then an independent director and now Tesla’s chairman, spent hundreds of hours on due diligence and took an active role in discussing the deal with investors such as T. Rowe Price and Vanguard. Shareholders ultimately approved the merger by an overwhelming margin in November 2016.
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