Some delays are imminent in the acquisition of SolarCity Corp (SCTY.O) by Tesla Motors (TSLA.O) as Tesla on Monday revealed that the lawsuits that its board members have been charged with bordering on fiduciary duty breach which is a serious obstacle to the $2.6 billion deal.
The lawsuits totaling four in number were filled by two people – a retirement funds group and police pension fund as stated known by Tesla.
A hearing will hold on October 18 and if an injunction is granted the plaintiff that means that the deal will invariably be delayed beyond 2016 and into 2017.
However, a Tesla representative has said that the company will oppose the move aimed at delaying the acquisition by the use of litigation.
There have been concerns about what is behind Tesla’s motivation in acquiring SolarCity by opposing interests of ownership and family connections in the company. Such a move will definitely cost Tesla a lot of money.
There have been conflicts of interests which Elon Musk who has the highest share in SolarCity and Tesla and currently the CEO of Tesla has noted will be sorted out.
SolarCity, while still in the process of considering the offer from Tesla to acquire the company sought the help of an independent committee to look into the process.
If after all said and done the minority shareholders agree that the deal should continue, it then means that Musk’s stake in Tesla will witness and increase from about 21% to 32.4% which also includes his stake in SolarCity.
The complaint by the plaintiffs is that Tesla did not involve an independent committee in processing the acquisition. They described the move by another board member of the two companies- Antonio Gracias and Musk not to vote on the deal as ‘superficial.’
Although it is rare to get injunctions from shareholders, but their requirement could be granted.
This position was made known by Lawrence Hamermesh from Delaware Law School, adding the case could go beyond what it is at the moment as the shareholders try to convince the presiding judge.
There has been a 31% discount on SolarCity shares since the Tesla swap offer after SolarCity on August 1, was valued at $25.37.
The shares of Tesla have fallen by almost 11% after the indication that the deal could scale through became very clear. As a result of this, Tesla said it intends to raise more money this year after facing cash crush. They also noted that is the acquisition pulls through, some the funds they will raise will go into it.