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Lawsuits: US court torpedoes Tesla’s huge share package for Musk

Lawsuits: US court torpedoes Tesla’s huge share package for Musk

Elon Musk could lose first place in billionaire rankings – because a US judge torpedoes his compensation plan at Tesla agreed in 2018.

Elon Musk has to worry about a block of shares worth $56 billion, which makes him the richest person in the world. The electric car manufacturer Tesla, led by Musk, had promised him stock options in 2018 if ambitious targets for stock market value and business figures were reached.

However, a judge in the US state of Delaware now found that Musk had too much influence in the background when the plan was agreed upon for one to be able to speak of a fair procedure.

Judge Kathaleen McCormick therefore ruled in favor of the plaintiff who wants to annul the agreement with Musk. She left it open on Tuesday as to what would happen next. She instructed the plaintiff and Tesla to work out a solution.

The judge did restrict that the cancellation of the mega deal does not automatically follow from the finding that the agreement was created under unfair circumstances. However, an annulment is the preferred solution in Delaware. “Plaintiff is entitled to annulment,” she wrote.

Electric car manufacturers and Musk can appeal

Musk was granted the stock options according to the plan, but has not yet been able to redeem them due to the legal dispute. The financial service Bloomberg listed him in first place in its billionaire ranking on Tuesday with an estimated fortune of $205 billion. The package is taken into account in such estimates. Without the $56 billion, he would be behind the head of the luxury group LVMH, Bernard Arnault, and Amazon founder Jeff Bezos.

According to the 2018 plan, Musk could get stock options in twelve steps with a maximum value of up to $55.8 billion (51.46 billion euros) if Tesla’s stock market value and business figures grew with certain minimum values. The judge ruled that Tesla’s shareholders had not been properly informed about the process in which the huge package was negotiated. Musk had close connections with some people who were involved in the negotiations on Tesla’s side.

The electric car manufacturer and Musk can still appeal. Musk initially did not comment on this. But he began preparing the ground for moving Tesla’s headquarters from Delaware to Texas. On his online platform He then started a survey at X asking whether Tesla’s legal headquarters should be moved to its headquarters in Texas. After a few hours, approval was at 90 percent – and Musk has used such surveys several times to justify his decisions.

“The $55.8 Billion Question”

The agreement’s targets seemed extremely steep in 2018. Above all, one requirement was that Tesla’s market value rose from around $50 billion to around $650 billion. But investors’ euphoria over the success of the Model 3 and Model Y compact cars made it possible: at its peak, Tesla was worth more than a trillion dollars. In the meantime, sales growth weakened – and the stock market value was also at $610 billion on Tuesday.

The judge raised several questions in her approximately 200-page ruling. Had there been serious negotiations between Musk and Tesla about the level of compensation? After all, the board of directors should be committed to the interests of the shareholders. And was it even necessary to offer Musk so much so that he would be more interested in the company’s economic success?

McCormick called the latter “the $55.8 billion question” that the Tesla board never asked itself, perhaps because of Musk’s “superstar appeal.” The agreement was intended to increase his Tesla stake to up to 28.3 percent. The judge pointed out that the Tesla boss already owned a 21.9 percent stake in Tesla at this point. The targeted price increases would have allowed his assets to grow, she emphasized. In addition, he has shown no intention of leaving Tesla.

Musk’s stake in Tesla is about 13 percent

From McCormick’s point of view, things weren’t looking any better with the independence of the Tesla negotiators. Among other things, she referred to General Counsel Todd Maron, “who was Musk’s former divorce lawyer and whose admiration for Musk moved him to tears during questioning.” Other members of the board of directors were also closely linked to Musk – and he himself proposed the stock plan and determined the pace of the discussions. The judge particularly emphasized that Musk said in the trial that he had “negotiated against himself.”

Musk’s current stake in Tesla is around 13 percent – he had sold shares on a large scale in order to buy Twitter for around $44 billion in 2022. He recently said that he first wanted control of a quarter of the voting rights before taking Tesla deeper into the business of artificial intelligence and robots.

Numerous US companies have their headquarters in Delaware because of the favorable tax rules. McCormick was also the judge in the legal dispute between Twitter and Musk, who wanted to withdraw from the purchase agreement. Shortly before the trial began, however, Musk gave in and completed the Twitter takeover.

Source: Stern

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