While still dealing with the fallout from a business he took privately, ailing billionaire Elon Musk now faces a lawsuit over a business he didn’t have.
Long before Musk bought Twitter for $44 billion in October, he had his sights set on Tesla, the electric car maker he remains CEO of and from which he derives most of his wealth and fame.
Musk claimed in an August 7, 2018 tweet that he had prepared funding for a $72 billion buyout of Tesla, which he then backed up with a follow-up statement that made a deal appear imminent.
But the acquisition never materialized, and now Musk must explain his actions under oath in federal court in San Francisco. The trial, which begins Tuesday with jury selection, was prompted by a class action lawsuit on behalf of investors who owned Tesla stock for 10 days in August 2018.
Musk’s tweets at the time fueled a rally in Tesla’s share price that ended abruptly a week later after it emerged that he didn’t have the funds for an acquisition after all. That led him to abandon his plan to take the automaker private, culminating in a $40 million settlement with US securities regulators that also forced him to step down as chairman of the company.
Musk has since claimed he entered the settlement under duress, claiming he secured financial backing for a Tesla acquisition in meetings with officials from the Public Investment Fund of Saudi Arabia.
The outcome of the trial could depend on the jury’s interpretation of Musk’s motives for tweets, which US District Judge Edward Chen has already ruled untrue.
Chen dealt Musk another blow on Friday when he declined Musk’s offer to move the trial to a federal court in Texas, where Tesla is moving its headquarters in 2021. Musk had argued that negative media coverage of his Twitter purchase poisoned juries in the San Francisco Bay area.
Musk’s stewardship of Twitter — where he has gutted employees and alienated users and advertisers — has proved unpopular with Tesla’s current shareholders, who fear he has spent less time directing the automaker at a time of increased competition. Those concerns contributed to a 65 percent decline in Tesla stock over the past year that wiped out more than $700 billion in shareholder wealth — far more than the $14 billion wealth reversal that took place between the high and low stock prices of the company company took place in August. 7-17, 2018 Period covered by the Class Action.
The lawsuit is based on the premise that Tesla shares would not have traded in such a wide range if Musk had not raised the prospect of buying the company at $420 per share. Tesla stock has since split twice, so the $420 price is now worth $28 on an adjusted basis. The stock closed at $122.40 last week, down from its split-adjusted peak of $414.50 in November 2021.
After Musk dropped the idea of a Tesla buyout, the company overcame a manufacturing problem, leading to a rapid upswing in auto sales that sent its stock skyrocketing and made Musk the richest person on earth until he bought Twitter. Musk fell from the top of the asset list after the stock market backlash over his dealings with Twitter.
The trial is likely to provide insight into Musk’s leadership style, as the witness list includes some of Tesla’s current and former top executives and board members, including luminaries like Larry Ellison, co-founder of Oracle, and James Murdoch, son of Tesla media mogul Rupert Murdoch. The drama could also shed light on Musk’s relationship with his brother Kimbal, who is also on the list of potential witnesses to be summoned during a trial set to last until February 25. 1.
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