Domestic M&A

Delaware Chancery Court finds Tesla’s purchase of SolarCity to be fair despite flawed sale process.

By Chauncey Lane

On April 27, 2022, the Delaware Chancery Court rendered a post-trial verdict in In re Tesla Motors, Inc., in favor of Elon Musk, co-founder and CEO of Tesla Motors, Inc. The verdict is the result of stockholder claims that Musk breached his fiduciary duties, was unjustly enriched, and created corporate waste in connection with Tesla’s 2016 acquisition of SolarCity Corporation. Musk was the Chairman of the SolarCity board of directors and the company’s largest stockholder. He was also serving as CEO and a director of Tesla, and owned 22% of Tesla’s stock. As it considered the proposed $2.6 billion stock-for-stock merger, Tesla elected not to form a special committee of independent directors to negotiate the transaction, and instead conditioned the approval on the “affirmative vote of a majority of the minority of Tesla’s disinterested stockholders” and recused Musk from certain Board discussions regarding the acquisition. Despite these measures, Tesla stockholders alleged Musk caused the Tesla board to approve the transaction in an effort to provide a lifeline to SolarCity. Applying the entire fairness standard of review, the Court concluded that notwithstanding the presence of conflicts and various shortcomings in the deal process, the price paid for SolarCity was fair based on market evidence, SolarCity’s cash flows, and the substantial synergies that would result from the transaction. 



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