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Lawsuit Claims Tesla-SolarCity Merger Propping Up Failed Investments

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Chris White Tech Reporter
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Tesla Motors said Monday its merger with SolarCity is getting hung up by shareholder lawsuits that claim the fusion is essentially a bailout for Elon Musk’s cash-strapped solar panel project.

The four lawsuits allege that insiders with the electric vehicle maker would be unjustly enriched by the companies’ combination, according to a regulatory filing on Monday. Two individual shareholders and two public pensions filed the lawsuits earlier this month.

“The deal isn’t in the best interests of Tesla in any way, shape or form,” said Seth Ottensoser, an attorney for the Riviera Beach Police Pension Fund in Florida, one of the plaintiffs suing Tesla. Merging with SolarCity amounts to “bailing out their own investments,” he said of Musk and other Tesla executives holding investments in SolarCity.

Musk, who is the chairman of both companies, owns 19 percent of Tesla and 22 percent of the beleaguered SolarCity.

The CtW Investor Group, which holds 200,000 shares of Tesla, claimed the company’s acquisition of SolarCity appears to be a family affair.

Lyndon Rive, who is Musk’s cousin and SolarCity’s chief executive officer, told reporters in June that he would recuse himself from the “decision-making process.”

JB Straubel, Tesla’s co-founder and current SolarCity board of director, played a big part in designing Tesla’s electric vehicles and has yet to announce a decision to recuse himself from the voting process.

The fusion of the two largest renewable energy companies comes as Tesla attempts to produce more than 400,000 Model 3 pre-ordered vehicles, which are not expected to be profitable until 2020. The company also recently launched a share sale to raise $1.7 billion for capital expenses.

The Arkansas Teacher Retirement System, as well as investors Ellen Prasinos and P. Evan Stephens, joined the Riviera Beach Police Pension Fund in Florida in its lawsuit.

Tesla, for its part, said it would vehemently oppose any future litigation meant to scuttle the merger.

“Simply because someone uses litigation to try to delay an acquisition does not mean it will be successful,” Tesla said. “At this point, it is not yet known if anyone will even end up pursuing such a request. If anyone does, Tesla will oppose it.”

SolarCity has been scratching and clawing around for capital to save its hide.

A private investment fund tied to Quantum Strategic Partners Ltd provided the company with a $305 million investment on Sept. 12. Soros Fund Management LLC, which is directed by liberal billionaire George Soros, advised the fund.

The solar panel producer, prior to its financial troubles, relied mostly on lease sales for revenue. It must now pull in as much cash as possible to stay afloat until the merger is finalized.

SolarCity is currently selling 30 percent of the home panels it installs for cash, which is a massive tick up from the 5 percent it sold earlier this year. It aims to boost that share to half or more of such sales by year’s end to “generate a larger amount up front to fund the growth and working capital the company needs,” according to Rive.

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