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When Tesla bought SolarCity in November 2016, Elon Musk introduced this deal as a green energy paradise alliance: combine an electric car company with the group of the country's largest provider of solar roof panels to create a one-stop shop for clean energy customers. .
What Musk did not discuss at the time was that SolarCity was in great financial trouble.
Only weeks after the merger, Ernst & Young, the auditor of SolarCity, concluded that the company did not have "sufficient liquidity to meet its obligations" as a standalone company, according to non-judicial documents. disclosed on Monday.
In other words, SolarCity was almost insolvent when Tesla shareholders decided to pay $ 2.6 billion to the solar panel manufacturer and assume its debts, thus saving it from bankruptcy likely.
The filings are part of a lengthy lawsuit filed by shareholder Ellen Prasinos on behalf of all Tesla shareholders against Musk and the Tesla Board of Directors, alleging that they had paid in cash. excess for SolarCity, ignored their own conflicts of interest and failed to disclose "troubling facts" essential. to a rational analysis of the proposed agreement.
One allegation: SolarCity hid from Ernst & Young information about two payments due to lenders that should have been used to determine the financial position of SolarCity.
In his motion, the plaintiff seeks summary judgment from the Delaware Court of Chancery on essential elements of the SolarCity case.
Tesla has not yet filed a court response.
Tesla made a statement Monday night at the Times: "These allegations are based on the assertions of the plaintiff's attorneys seeking a payday, and are not representative of our shareholders who support our mission and ultimately voted in favor of the acquisition. The charges in the plaintiff's factum are false and misleading, as Tesla and SolarCity have disclosed all the material information in its power of attorney and in other public documents that all shareholders might consider before making the decision on the transaction. "
Last year, in a long and detailed court case, Tesla challenged and responded to dozens of allegations contained in the complaint.
The complainants allege that the close ties between Tesla and SolarCity prior to the merger resulted in decisions that did not benefit shareholders. Musk was President and CEO of Tesla as well as Chairman and Principal Individual Shareholder of SolarCity. SolarCity was founded by the cousins of Musk, Lyndon and Peter Rive, who headed it and sat on its board of directors. Musk's brother, Kimbal, is a member of Tesla's board and SolarCity's board.
Several other members of the Tesla Board of Directors were also directly connected to SolarCity at that time, including:
- Brad Buss, Chief Financial Officer of SolarCity, six months before the announcement of the merger.
- Ira Ehrenpreis, a member of Tesla 's board of directors whose investment fund had a representative on the SolarCity board of directors.
- Antonio Gracias, one of the first investors in Tesla and SolarCity and board member in both cases.
Despite the connections, only the Musk brothers abstained from voting on the deal with SolarCity.
In addition, another privately funded company from Musk, SpaceX, lent money to SolarCity so the company's cash flow did not drop below $ 169 million, an event that would have triggered a default of the bond and eventually led to bankruptcy.
Documents extracted from e-mails, documents, depositions and other evidence released on Monday testify to the worsening of the SolarCity financial crisis that led to the merger with Tesla.
In September 2015, SolarCity held weekly cash management meetings to keep the company afloat as sales and turnover declined. The following month, General Manager Lyndon Rive and Chief Financial Officer Buss reportedly told Elon Musk that the company needed $ 180 to $ 300 million in cash. According to the record, SolarCity has contacted several investment banks and private equity investors to obtain new investments in equities or convertible bonds and has been told no.
In February 2016, the SolarCity Board of Directors was struggling to avoid a default in the payment of a bond. According to the record, Rive and Musk met separately to find ways to keep money. Later in the month, Musk asked Tesla's CFO to prepare an argument for an acquisition of SolarCity for Tesla's board of directors.
In April, SolarCity Board members learned from Rive and others that the number of solar panel installations is expected to decrease by 28% in 2016, but the complaint indicates that the # 39, information has never been passed on to public investors.
The filing cites "internal booking reports" at SolarCity using terms such as "dipped in a sea of red".
On June 21, 2016, the merger plan was announced, just weeks after Tesla raised about $ 1.5 billion as part of a secondary offering. When the agreement on SolarCity was announced, the Tesla stock fell by 10%.
Musk insists that by recusing himself from voting on the merger, he avoided conflicts of interest. In a recent statement, he said, "I could not be recused from all the discussions. Obviously, I had to express my opinion. According to the record, Musk reportedly told his deputy that he should talk to major investors, neutral or negative, about the merger.
In October 2016, Musk sparked the enthusiasm sparked by solar products by unveiling a "solar roof" on the former set of ABC's "Desperate Housewives." The roof incorporates solar cells with shingles, which were to be sold in Tesla stores and available for commercial deployment. .
The shingle that Musk held turned out to be a fake, but it was not well known when Tesla shareholders decided to buy SolarCity in November 2016.
The plaintiffs claim that Musk and the members of the board of directors pay to Tesla, which belongs to its shareholders, damages and restitution yet to be determined.
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