Lawsuits May Delay Tesla / SolarCity Deal

Tesla

SEP 23 2016 BY ERIC LOVEDAY 49

SolarCity System With Tesla Powerwall

SolarCity System With Tesla Powerwall

Tesla Motors’ acquisition of SolarCity has hit a bit of a road bump in the form of four lawsuits filled to challenge the deal.

The lawsuits were all filed in early September and have various allegations ranging from “breached fiduciary duties” to “individual defendants would be unjustly enriched by the proposed Merger.”

Tesla still believes that the deal can be finalized by the end of the year, but these legal proceedings are certainly a setback.

Here are the four lawsuits:

  • City of Riviera Beach Police Pension Fund v. Elon Musk, et al. , C.A, No. 12711-VCS
  • Ellen Prasinos v. Elon Musk, et al. , C.A. No. 12723-VCS
  • Arkansas Teacher Retirement System, et al. v. Elon Musk, et al. , C.A. No. 12740-VCS
  • P. Evan Stephens v. Elon Musk, et al. , C.A. No. 1275-VCS

The assertions made in the lawsuits are described by Tesla as follows:

“Each of the Actions names as defendants the members of the Tesla Board, and certain of the Actions also name as defendants Merger Sub, SolarCity, and certain members of the SolarCity Board. The Actions seek to assert claims derivatively on behalf of Tesla, alleging, among other things, that the members of the Tesla Board breached their fiduciary duties in connection with the proposed Merger and, in some cases, that SolarCity and members of the SolarCity Board aided and abetted breaches of fiduciary duties and that certain individual defendants would be unjustly enriched by the proposed Merger. Certain of the Actions also assert putative class action claims against the members of the Tesla Board, including on the ground that the preliminary joint proxy statement/prospectus filed on August 31, 2016 allegedly failed to disclose material facts in connection with the proposed Merger.”

According to Tesla, these types of lawsuits are common in merger deals. The suits may delay the merger, but Tesla feels the overall claims are “without merit.”

Source: Automotive News

Categories: Tesla

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49 Comments on "Lawsuits May Delay Tesla / SolarCity Deal"

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What amazes me is that the Tesla/Musk cheerleaders believe the company and the man are looking out for their best interests – like Apple, a Marketing managers wet dream.

OK™

Let’s assume that Musk is doing nothing buy looking out for his own interests. Well, he owns a lot Tesla and if this is a disaster so he’ll suffer if it fails.

Of course you can say also owns a lot of SolarCity and he will lose out if nobody helps them out thus he is helping himself. OK, but is that coming at the cost of Tesla? Perhaps he thinks Tesla will be hurt a little but overall do fine. He can’t think Tesla is going to fail, that would be against his own interest (better to have Tesla and lose SolarCity than to lose both).

So his interests are for a large part aligned with other Tesla owners. But not completely.

I think this deal is impossible to judge without additional information. I would want to know much more about the progress of the Rochester factory, the new solar roof product, any plans on developing their own solar PV inverter/battery-controller, etc.

Spot on, but I would add that you’re assuming Elon Musk is rational. When it comes to certain subjects I would argue that he is not, and SolarCity (and SpaceX, which holds SolarCity debt) is one of those subjects. In this respect he is no different than any other human.

Personally, I think that SolarCity is about to be screwed by falling grid prices and the collapse of net metering. SolarCity only makes money assuming an obsolete grid that doesn’t move to cheap renewables. I have no reason to believe that utilities will not move to solar at least as aggressively as households, and they have a net cost advantage.

Solar City is also about to be screwed by starting production at the Buffalo Solar Gigafactory when there is a looming glut of solar panels that will erode panel prices.

http://www.bloomberg.com/news/articles/2016-08-23/solar-industry-braces-as-looming-glut-threatens-to-erode-prices

That’s why they’re “bundling” with a charger and…A new roof!

BINGO furthermore, tesla/solar city will become an electricity provider that sells BEVs.

And is that why Solar City continues to have one of the most expensive installed cost of solar energy in terms of $/W among the industry ever since its IPO?

By combining with TSLA brand name, it is hoping that it can “upsell” to wealthy buyers who are willing to fork over cash for brand names.

But in the solar fields, the style/look of panels aren’t nearly as important as $/W…

“But in the solar fields, the style/look of panels aren’t nearly as important as $/W…”

If you look to put solar panels in a field or solar panels on industrial buildings perhaps, but it is already much less so on a house and completely false on the more affluent peoples houses that also happen to have larger roofs. If you are in a wealthy neighborhood you would expect all the houses to be equipped with PV since they have the money to invest in what is now economically advantageous, but they more often don’t have PV because they don’t like the esthetics of it and they prefer to miss that extra income rather than compromising the esthetics of their living place.

So there is a clear market where the esthetics is making a difference. It also makes available a better margin because once they are convinced by the esthetics they are more likely to pay a higher price than the super low cost and almost no margin that you find with industrial roof type panels. So esthetic panels would kind of fit with the higher value brand that Tesla represent.

“Solar City is also about to be screwed by starting production at the Buffalo Solar Gigafactory when there is a looming glut of solar panels that will erode panel prices.”

Well, SCTY can’t start production without more financing. But currently with its financial standing, it doesn’t seem to be able to raise money cheaply which is essential to its survival.

SCTY is offering 6.5% solar bonds for 18 months and majority of it were bought by Elon himself and CEO of SCTY… So, that doesn’t give anyone confidence that SCTY isn’t in trouble.

There’s a factor you’re neglecting to account for: a SolarCity bankruptcy not only hurts Elon’s pocketbook, but materially affects the ability of Tesla (and SpaceX!) to raise money in the future because of Elon’s close involvement with all three.

It is therefore in the best interest of Tesla (and SpaceX) for SolarCity to be rescued, which is not exactly the same thing as [i]the best interest of their shareholders.[/i]

For example, if the SolarCity bailout turns out to be the straw that breaks Tesla’s back, rest assured that Elon will have extracted his equity long before the tent implodes. But if SolarCity goes under, Elon will no longer be in a position to get out from under Tesla without tipping his hand, and any attempt to do so will simply accelerate the collapse.

I forgot to add that in the former case (SolarCity dooms Tesla), the shareholders are left holding the bag, while in the latter, Elon and his equity are trapped in the mine with them.

“Elon will no longer be in a position to get out from under Tesla without tipping his hand, and any attempt to do so will simply accelerate the collapse.”

But Elon did put up his own cash in the latest purchase of Solar City Bonds.

So, he is at least putting his own money up where his mouth is.

However, that is still relatively small comparing to what he is expecting TSLA share owners to do in the bailout with their share dilutions.

MMF said:

“But Elon did put up his own cash in the latest purchase of Solar City Bonds.

“So, he is at least putting his own money up where his mouth is.”

You’ve got that backwards: Elon is putting his mouth where his money is.

Elon is already heavily invested in SolarCity stocks. There seems to be little question that one of the motives for this deal, perhaps the biggest motive, is for Elon to avoid losing massively on his SolarCity investment, which would happen if SolarCity were allowed to go bankrupt… as seems inevitable if the Tesla buyout isn’t approved.

Inevitable? Really?

Spider-Dan said: “There’s a factor you’re neglecting to account for: a SolarCity bankruptcy not only hurts Elon’s pocketbook, but materially affects the ability of Tesla (and SpaceX!) to raise money in the future because of Elon’s close involvement with all three.” I completely disagree. Tesla’s own stock price plunged about 10% (according to one article, anyway) following the announcement of the SolarCity deal. Now that’s not all that unusual, as Tesla’s stock is quite volatile. But it certainly does signal that most investors are perfectly capable of distinguishing between a good bet and a bad one, even when Elon is involved in both. Investing in Tesla Motors has been perceived as a good bet, and I think it will remain so even if it’s dragged down by the more-or-less dead weight of SolarCity. But the latter certainly won’t help. It has been said, by many, that the SolarCity deal will be good for Tesla in the long term, as that will help the Tesla Energy division. That may or may not turn out to be correct. But there’s no question that the timing of this deal is abysmal. Tesla will be taking on much more debt over the next 2-4… Read more »

More FUD from PP, PP must for sure be some big-oil related poster or other shady interest obstructing a green future and Elon’s grand vision.

Go Elon! Great deal! A no brainer (as Elon said himself)!

PS: Sarcasm detector at 11. The above is what PP usually tells others commenters when they dare to criticize Tesla / Elon Musk.

A 10% decline only speaks to investor reaction, which of course is self interested and this 10% may simply be wrong. Investor reaction is not an argument to say merging SolarCity is a bad idea. I’ve been following Tesla stock since it IPOed, and investors have often been mistaken in the short term. TSLA went down when the couple battery fires occurred. It went down when S/X delays occurred (irrelevant because Tesla buyers are patient as there’s no alternative). It went down with the announcement of the Gigafactory, which diverted billions in capital then. Frankly I trust investors intelligence far less than Musk’s.

Is it to give you some credibility that you have a blue “End Resut” ? Because it links to insideev.

They used to be called “interlocking directorates” where members of both boards got rich in a sweet deal.

Hmm, I can see the electric utility companies being scared to death of a Tesla/Solar City merger. Solar plus storage is the holy grail of energy production. Also, Tesla could make the power inverters and not have to use a 3 party product. They could end up being the biggest power producer in the US very quickly.

Well, not really. Although people can use solar PV to generate their own electricity and solar PV to store it, it is VERY DIFFICULT to build a house to have power 100% of the time if you go off-grid and rely only on that solar PV and battery.

So they are fighting back by creating tariffs like the one in Nevada that is explicitly designed to make rooftop solar PV uneconomic (IMHO). They switch to a tariff that his a minimum monthly fee (even if you use zero electricity!) and pays you only a very trivial amount for solar PV electricity that you put onto the grid (Two point something cents per KWH).

People need to watch what their public utility commissions do these days. The utilities are doing their best to corrupt them and get the rules written in their favor and screwing rooftop solar PV.

Nevada can buy kWhs from solar farms for 3.x cents each. Why should they pay wealthy homeowners 12 cents for kWhs from the very same sun? It’s the other ratepayers (mostly lower income who don’t own homes) who shoulder the extra cost.

Rooftop is an inefficient way to deploy solar. It’s $3/W vs. $1/W for utility scale and rooftop produces fewer kWhs because orientation is sub-optimal. People who want rooftop should be allowed to do it, but if they’re going to feed into the grid it should be on equal terms with other solar providers. And if they way to use grid services at night and on cloudy days they should pay for that.

doggy — Ah, the old lies about the Nevada laws never end. Your first mistake is comparing wholesale UNDELIVERED prices from solar farms, to the price of DELIVERED home solar. When a utility buys electricity from a solar farm, they pay at the drop, undelivered, BEFORE grid losses. That brings in three factors: 1) The electric company must then deliver it through the grid and incurs grid costs. Typically around 50% of what you pay for when you buy electricity is grid costs. On the other hand, solar electricity that you consume from your own solar has zero grid cost (it never hits the grid). Excess solar that goes to your neighbors has greatly reduced grid costs, and actually SAVES the utility the rest of the grid costs they would otherwise have to expend to get electricity to your neighbor all the way from the distant source. 2) Grid losses. Again, you are comparing an electricity source based upon a wholesale price that does NOT account for grid losses. In the US grid loss is right around 5% (based on 2014 numbers from the EIA). So when you compare prices, you have to adjust by 5%. 3) Profits. Why should… Read more »

I’m curious, why don’t you like 3rd party products? Have you ever considered that company A can make the best panels, company B the best batteries, company C the best inverters, company D the best cables? No, of course you haven’t. That goes against everything the guru told you.

Vertical integration of high edge cutting technology is often better for costs, even more for efficiency if the ones doing the end product are on the genius level.

If you do them all under the same roof, everything works and only needs to be installed once, which controls costs for the consumer…

And all the profits stay under one roof.

“If you do them all under the same roof, everything works and only needs to be installed once, which controls costs for the consumer…”

Yet, that is exactly what solar city does but it has one of the highest cost in the industry in terms of $/W in installation cost.

That is why it is competing by offering $0 down leasing program but that is heavily dependent on cheap financing upfront which it no longer has access to.

But Tesla still does. So, it is better to repackage the “junk brand” under a brilliant brand (Tesla) so it can be sold at better price to investors…

Hmm… that is exactly how the mortgage crisis happened. (packaging junks into AAA grades). Not that this will become that scale. But it certainly causes concern at Tesla’s debt holder.

The true “fear” is mass solar panel adoption; Tesla has the ability to make geeky things, cool…But there are a variety of ways to “offset” the costs…Pass rules for permits for all solar installs, pass rules to force an utility worker to make the final grid connection, increase the number of peak/off peak tiers (Ultra Super Peak, Super Peak, Peak, Off Peak, Super Off Peak and Ultra Super Off Peak), etc…

I hope they can delay it until Model 3 is released in large numbers (about 1 million) without costing too much money or attention from Tesla. Now’s not the time to divert attention away from Model 3.

Another Euro point of view
Well, I discovered not long ago Tsla stock and the amazingly entertaining riot going on in between “longs” and “shorts”, as I manage investment funds here in Luxembourg I can more or less understand what’s going on most of the time. I have 2 sources of info, Tesla Motors Club (short term tsla price movements thread) and Seeking Alpha. Let’s disqualify Seeking Alpha as shorts writing articles there are on an agenda. As far as what the most experienced investors on Tesla motors club do write on the subject (not the juvenile ones, there are many around tsla) , they seems to more or less agree that it is a damage control situation. Solar city survival expectation as a stand alone company was like 9 months max. Best could have been to pick up the bits upon bankruptcy but then damage to success story of EM as an entrepreneur (he is both in the board and a shareholder of SCTY) could have possibly made Tesla access to cash markets not as easy as before. Thus taking over Solar City, thus preventing it to go bankrupt, would have been considered as overall less damaging. When a stock valuation is based on… Read more »

Yes, you hit the nail on the head.

The reputation at Elon owned company is what is valuable. Elon can’t allow SCTY to go bankrupt.

Currently Tesla has way better outlook than Solar City. It is clearly a “bailout” by Tesla.

Solar City is raising funding at 6.5% for 18 month debt.

Tesla is raising funding at around 2% rate.

I would say that SCTY is better hiding under Tesla’s name and it would save Solar City a lot of money in terms of cost of financing.

Yes, SCTY stand alone survive rate is extremely low especially since its solar plant in NY will need another few rounds of massive financing to get it off the ground. But based on current outlook, SCTY won’t be able to raise much more funding with its financial distress.

Elon is really trying to save the day.

I just hope it doesn’t distract the Model 3 financing too much as Tesla will need it in Q3 and possible more next year. Dragging along SCTY will certain impact the Tesla cash flow for sure.

Fossil fuel industry and Republicans are probably behind these lawsuits. In the long term a merger between tesla and solar city will enrich all shareholders. Wake up America!

Why? Because they want Solar City to die?

Solar City will die on its own without the bailout of Tesla.

Having Solar City might drag down Tesla. So, if those oil interests want to kill both, it would be better to let the merger go through and then kill the combined company with by cutting off financing.

They don’t want SolarCity to die, they want Solar net metering to die. If you use 300Kwh grid power, and send back 600Kwh solar power, they want to pay you $9 when they charge $39-$50 for it regularly.

“If you use 300Kwh grid power, and send back 600Kwh solar power, they want to pay you $9 when they charge $39-$50 for it regularly.”

Why would you do that? That is stupid decision to send back 2x more power than you use.

Even SCTY doesn’t recommend that.

Because not every month will you use 300Kwh. Summer days you can use 750-1,000Kwh. Winter days you only produce 250-350Kwh.
It Obviously varies.

You obviously don’t live in the US and understand how netmetering work.

You can a true up statement once per year. So, your totally yearly production is used against your yearly usage…

Excessive kWh is then paid back to you at lower rate when ALL your usage are offset first.

So, again, why are you producing more power than you use? Again, SCTY doesn’t recommend that.

Listen a BEV manufacturer that bundles in the fuel needed for your BEV in one monthly payment is a game changer…fossil fuel industry and Republicans are trying to stop that merger because it will provide a cleaner option for transportation and it will hurt fossil fuel industry.

It isn’t since the electricity also powers the house.

Bundling it doesn’t really help much if it isn’t cheaper…

In my opinion, clean renewable electricity should cost more than dirty electricity. We pay more for clean water than dirty water? We pay more for organic than non organic? We pay more for beautiful women than ugly women? Lol

I suggest you read the post from “Another Euro point of view”, just a few comments above. We don’t need to invoke a conspiracy theory involving Republicans, Big Oil, or orbital mind control lasers to understand why a lot of Tesla stockholders are opposed to the deal.

I’m neither a Republican supporter nor a Big Oil employee/shill, yet I still think the SolarCity deal is a bad one. You need to adjust your tinfoil hat.

PP has been exposed and tries to hide his tracks. Very shady stuff.

The true Musk supporters think this is a great deal. A trillion-$-market cap awaits for the combined SCTY-TSLA entity (as Elon said).

Go Elon!

😉

These lawsuits might be a delay strategy until November elections because if Strong man Trump gets in white house he plans on destroying all renewable energy incentives and promote gas guzzlers because the price of oil is low. A vote for strong man trump is a vote for increased pollution.

Yes, that is scary considering that Trump is about release fracking and coal all over us.

He already said that he will get rid of all regulation on drilling on FEDERAL LANDS! and bring back coal!

Anyone who choose Trump is brain dead! If you are offended by that, then so be it! You don’t deserve my respect!

This is absolutely a crappy deal for Tesla share holders. This deal is nothing more than a bail out for the Solar City. Facts are: Solar City has a cash crunch and its solar bonds are yielding 6.5% with only 18 month terms. That is unheard of. Beyond the junk bond status. The latest round of offering were bought mostly by Elon and his family so the investors are already leery of giving Solar City more money. Solar city currently has one of the biggest installed cost per W among all competitors. Its business model is solely dependent on “no cash down” leasing program which is totally dependent on low cost financing. With financing drying up with its poor performance, it has BIG PROBLEM raising more cash without Tesla’s help. The last two rounds of cash raising are mostly bought by Space X and Elon and his family. That doesn’t reflect well on Solar City’s future. The recent debt financing company has asked Tesla to exclude solar city from its liability if Tesla wants more cash from them when the merger news came out. That is another bad sign for solar city in terms of confidence. Solar City has recently… Read more »

The merger makes sense, but only in the long term.

It should be understood that for normal investors, every idea Elon Musk had was crazy. Seen from within a short term quick profit brain they make no sense. Like starting a rocket company. Or launching a new car company. Why do investors think that Musk, Straubel and the others suddenly would stop thinking long term? Stop being inventive, rational, physics-based?

If you think Tesla board members are a bunch of lunetics, just don’t buy Tesla shares.

Buying shares yet suing Tesla for being what it is, shows utmost stupidity. Or an agenda.

This article explains why investors should grow up:

http://www.forbes.com/sites/adamhartung/2016/09/23/why-investors-should-support-the-tesla-solarcity-merger

Am I correct in assuming that all the disgruntled share holders own Tesla shares, not Solar City shares? So they must believe that Solar City will fail and therefore bring down the value of Tesla shares. It is always a gamble that a bail-out will be successful so I can certainly sympathize with their concerns. Personally I think Solar City is on good footing for success, but that is not the point. The point is whether the case for bailing out Solar City was fairly presented to voting Tesla share holders. I don’t see any need for deception, yes Solar City needs a capital infusion to finish their solar cell production factory but they are not building it primarily to compete on the open market. They have their own highly successful market where they sell directly to the end user so sales are already guaranteed. Building their own inverter-controllers is not a great engineering challenge (i.e. no risk and they are already doing that for their cars) and strictly a cost reduction process. The solar cells to be produced at the new factory will be more efficient than most of the industry which is a great selling point. All of… Read more »