By Tom Hals and Sierra Jackson
WILMINGTON, Del. (Reuters) -Elon Musk on Tuesday defended his handling of Tesla (NASDAQ:) Inc’s $2.6 billion merger negotiations with SolarCity, denying claims that he dictated a price the electric vehicle maker would pay for the ailing solar panel maker.
The lawsuit by union pension funds and asset managers alleges Musk strong-armed Tesla directors in 2016 into using the company to rescue SolarCity from the brink of bankruptcy, benefiting Musk.
Musk at the time owned a 22% stake in both Tesla and SolarCity, which was founded by his cousins. The Tesla shareholders want Musk to be ordered to return the value of the deal to Tesla.
Proceedings on Tuesday were briefly interrupted when an unidentified person, who was not Musk, vomited in the court, according to a court official. Building security said the trial would resume in two hours.
The two-week trial in the Court of Chancery in Wilmington, Delaware, kicked off Monday and is being overseen by Vice Chancellor Joseph Slights.
Musk has consistently told the court that the Tesla board primarily handled the SolarCity deal and he was not part of the board committee that negotiated the terms.
On Tuesday, shareholder attorney Randall Baron, however, pressed Musk to explain meeting notes taken by a financial advisor showing Musk suggested the board offer a $28.50 share price for SolarCity. Baron asked whether that conflicted with Musk’s statement that he had fully recused himself from negotiations.
“I was making the obvious point that any offer, if not publicly defensible, will be rejected by SolarCity shareholders,” Musk said.
Central to the case are claims that despite owning only 22% of Tesla, Musk was a controlling shareholder due to his ties to board members and domineering style. If plaintiffs can prove this, it increases the likelihood that the court will conclude the deal was unfair to shareholders.
Musk spoke softly and was subdued throughout his Tuesday testimony. He was more direct than on Monday, when he sometimes offered meandering answers to yes or no questions and sparred with Baron.
Baron pressed Musk to explain why he reviewed deal packets for the Tesla board before they were sent to directors, suggesting the CEO was controlling the flow of information.
“It’s part of the board process to make sure they have full and accurate information,” Musk testified.
As he did on Monday, Musk repeatedly defended the SolarCity deal by saying the solar panel company had to be quickly acquired or find financing to solve its dangerous cash shortage. He argued that drawn-out negotiations by Tesla would have left the company stuck in limbo because those talks prevented SolarCity from seeking outside funding.
Legal experts said the judge will be looking for evidence that Musk threatened board members or that directors felt they could not stand up to him. Board members and others involved in the 2016 deal, including Musk’s younger brother Kimbal, will testify beginning as soon as Tuesday.
The company’s directors settled allegations from the same lawsuit last year for $60 million, paid by insurance, without admitting fault.
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