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Elon Musk prepares to testify on Tesla’s acquisition of SolarCity

On Monday, Elon Musk will represent Tesla in its defense of the $2.5 billion acquisition of SolarCity in 2016, opposing shareholder lawsuits, accusing the transaction of conflicts of interest.

Before Tesla Inc. acquired a company called SolarCity in 2016, Elon Musk praised the deal as a “no effort”-the deal would connect the leading electric car manufacturer with a solar energy company. Battery panel manufacturers combine. Can charge electric vehicles.

It doesn’t work exactly like that.

In the Delaware Court of Chancery on Monday, Tesla’s CEO will testify on the $2.5 billion transaction in a shareholder lawsuit that alleges that Tesla’s acquisition is riddled with conflicts of interest and ignores SolarCity’s fundamental weaknesses. , And unsurprisingly failed to generate the profit Musk promised.

Being questioned under oath, Musk planned to defend the acquisition, believing that it was a legitimate acquisition.

At the time of the all-stock acquisition, Musk was the largest shareholder and chairman of SolarCity. Seven shareholder lawsuits were merged into one, accusing Tesla directors of breaching their fiduciary duties, succumbing to Musk’s wishes and agreeing to acquire the troubled company. In the apparent conflict of interest that the plaintiff said, SolarCity was founded by Musk and his two cousins, Lyndon and Peter Reeve.

In August last year, a judge approved a $60 million settlement to settle claims against all directors of Tesla’s board of directors except Musk, but did not admit any errors. This makes Musk, who refused to settle, the only remaining defendant. The trial, which started on Monday, was originally scheduled to take place in March last year, but was postponed due to the COVID-19 pandemic.

Daniel Ives, an analyst at Wedbush Securities, called the acquisition a “obvious dark circle” for Musk and Tesla, largely because SolarCity failed to achieve profitability.

Ives said: “This is basically putting good money on bad money.” “For all the successes and all the unimaginable heights that Musk has achieved, this is a low point.”

Ives said that most investors have no value to the company’s solar business.

“I just think Musk and Tesla underestimated the challenges and obstacles that the business brought,” he said.

Having said that, Ives said that he believes Tesla’s energy business can still be “moderately successful.”

Tesla has disbanded its media relations department and did not respond to messages seeking comment on the lawsuit on Friday. The company argued in its 2020 annual report that the lawsuit is groundless and Tesla will actively defend itself.

The company reported: “We are unable to estimate the possible loss or the extent of the loss (if any) related to these claims.”

Tesla’s energy production and storage business generated $1.9 billion in revenue last year, an increase of 24% over the previous year. Most of the revenue comes from the sale of battery storage units. Tesla did not specify whether the business is profitable, and there are debts and expenses.

The plaintiff filed a lawsuit alleging that, despite the obvious conflict of interest, Musk pushed for the decision to acquire SolarCity.

Musk has a history of fighting government agencies and litigation. He was forced to pay a fine of $20 million to the US Securities and Exchange Commission because he posted a statement on Twitter that he had the funds to take the company private, but he did not. But he won a defamation lawsuit brought by a British diver who participated in the rescue of the Thai football team trapped in a flooded cave. Musk called this man a “pedo guy” on Twitter.

Even if the trial ends with Musk having to pay for the entire SolarCity transaction in person, $2.5 billion will not cause much harm to the world’s third richest man. Forbes magazine estimates that Musk is worth about $163 billion.

Ives said that although any such payment will not seriously affect Musk’s wealth, it will damage his reputation for choosing to acquire.

Ives said that after the others reached a settlement, Musk is fighting the lawsuit, “because this is what Musk did.” “I think Elon thought it was the right deal, and it’s still the case.”

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