SolarCity’s merger with Tesla Motors could be delayed by four shareholder lawsuits challenging the $2.3 billion acquisition.
The lawsuits are another obstacle that could delay Tesla’s acquisition of the solar energy installer at a time when both companies are burning through millions in cash and facing the need to raise more money in the coming months.
One of the lawsuits is seeking an injunction to prevent the merger and block Tesla from holding a shareholder vote on the acquisition. That could hold up the deal until a Delaware court can hold a hearing, now scheduled for Oct. 18.
That means shareholder votes on the merger, which are likely to be pivotal moments in the acquisition process, are unlikely to be held before then and quite possibly not for weeks after, depending on what the court rules.
The four lawsuits, filed by four different investors, contend that Tesla’s board members breached their fiduciary duties by agreeing to the merger because Elon Musk, co-founder and CEO of the electric vehicle manufacturer, and other top executives own shares in both companies.
With four separate lawsuits pending in Delaware’s Court of Chancery, the court Friday set a schedule, including the Oct. 18 hearing, to consolidate the lawsuits and determine which one will take lead status in the proceedings.
The lawsuits “could prevent or delay completion of the merger and result in substantial costs to Tesla and SolarCity,” Tesla said in a filing with the federal Securities and Exchange Commission on Monday. Tesla said the lawsuits are “without merit.”
The lawsuits were filed by the City of Riviera Beach Police Pension Fund, the Arkansas Teacher Retirement System and individual shareholders Ellen Prasinos and P. Evan Stephens. Each one seeks to block the merger and obtain damages for shareholders. One of the lawsuits seeks class-action status, alleging that Tesla’s regulatory filing with details of the merger did not disclose important facts.
The merger has been controversial for several reasons, including the close ties between the executives and board members of both companies. Musk is the largest shareholder in both companies, serving as Tesla’s CEO and SolarCity’s chairman. Musk’s cousin Lyndon Rive is SolarCity’s CEO, and some Tesla board members have partners who serve on the SolarCity board.
The proposed deal also has raised financial concerns from shareholders, with SolarCity burning through cash to fund its no-upfront-cost residential lease program and the upcoming opening of its solar panel factory at RiverBend in South Buffalo. Tesla also is facing big capital needs in the coming year as its ramps up production of its more affordable Model 3 sedan and prepares for the opening of its battery gigafactory outside Sparks, Nev.