28 Apr 2022 Cases

Compass Lexecon Client Elon Musk Prevails as Delaware Court Rejects Shareholder Challenge to SolarCity Acquisition

3 minute read


Court Repeatedly Cites and Relies Upon Compass Lexecon President Professor Daniel R. Fischel’s “Credible” and “Persuasive” Testimony

Following an 11-day trial in July 2021, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery on April 27, 2022 entered a verdict in favor of Compass Lexecon’s client Elon Musk. VC Slights concluded that when Tesla acquired SolarCity in a $2.6 billion stock for stock merger, “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 was otherwise highly beneficial to Tesla. Indeed, the Acquisition marked a vital step forward for a company that had for years made clear to the market and its stockholders that it intended to expand from an electric car manufacturer to an alternative energy company.”

The case involved claims by several Tesla shareholder plaintiffs that the transaction was the product of breaches of fiduciary duty and that Mr. Musk had caused a servile and conflicted Tesla Board to approve the acquisition in order to “bail out his (and other family members) foundering investment in SolarCity,” a company founded by Mr. Musk’s cousins and in which Mr. Musk had substantial holdings. Plaintiffs alleged that SolarCity was in reality insolvent and that because of Mr. Musk’s conflict of interest, Tesla paid $2.6 billion for a worthless company. Among other quantifications of damage, Plaintiffs requested a damages award of $13 billion based on the value of Tesla stock received by Mr. Musk in exchange for his SolarCity stock.

In rejecting Plaintiffs’ claims in their entirety and ruling in favor of Mr. Musk, VC Slights found that Professor Fischel’s trial testimony “credibly explained that ‘the relevant economic question in this case is the value of the purchased assets, what Tesla acquired in the SolarCity transaction, [and] what the value of those assets were to Tesla.’” VC Slights concluded, among other things, that Tesla’s internal estimates of synergies were “supported by comparable industry deals and empirical studies,” and that Professor Fischel “persuasively testified [that] the Acquisition price offered by Tesla’s Board reflected, at most, a modest premium when measured at the time of contracting," and “credibly established that the premiums [paid by Tesla for SolarCity was] consistent with comparable industry transactions and comparable stock transactions.” VC Slights further cited to Professor Fischel’s conclusion that Tesla’s stockholder base consisted substantially of sophisticated institutional investors and noted that “Fischel persuasively testified that the Tesla stockholder vote is ‘the ultimate market test,’” and that “Fischel explained that the affirmative vote of Tesla’s minority stockholders was particularly compelling evidence of fairness given the extensive pre-vote disclosure regarding SolarCity’s financial condition (including a ‘voluminous discussion’ of liquidity) and the robust, mixed public commentary, including Glass Lewis’ characterization of the deal as a ‘bailout’ of SolarCity with a process ‘steeped in conflicts.’” Finally, VC Slights stated that Professor Fischel “provided credible testimony regarding the causal connection between the Acquisition and Tesla’s skyrocketing performance.” Overall, VC Slights concluded “the linchpin of this case, though, is that Elon proved that the price Tesla paid for SolarCity was fair—and a patently fair price ultimately carries the day."

Compass Lexecon also supported affiliate Jonathan F. Foster, who submitted an expert report and testified at trial, opining that the process followed by the Tesla Board pursuant to the acquisition was consistent with custom and practice. VC Slights also cited Mr. Foster’s trial testimony in his opinion.

Professor Fischel and Mr. Foster were assisted by a Compass Lexecon team that included Adel Turki, Rahul Sekhar, Todd Kendall, Robin Stahl, Nabila Lotayef, Avisheh Mohsenin, and Jim Libby. Compass Lexecon worked closely with counsel from Cravath, Swaine, & Moore LLP including Evan Chesler, Daniel Slifkin, Vanessa Lavely, Helam Gebramariam, Jackie Carleton, Samuel Stuckey, and Eric Zepp and Garrett Morris from Ross Aronstam & Moritz who successfully represented Mr. Musk.

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