ATRS files lawsuit against electric car giant Tesla Motors, seeks to halt $2.6 billion merger with SolarCity

The Arkansas Teacher Retirement System (ATRS) and other minority shareholders of Tesla Motors are seeking to halt or delay the electric car company’s pending $2.6 billion acquisition with SolarCity Corp., which was expected to close sometime this week.

In a recent filing with the federal Securities and Exchange Commission (SEC) on Sept. 19, Tesla revealed that between Sept. 1 and. Sept. 16 four lawsuits challenging the merger were filed in the Court of Chancery of the State of Delaware by “purported stockholders of Tesla,” including ATRS.

According to the regulatory filing, lawsuits were filed by ATRS, the City of Riviera Beach Police Pension Fund, and individual stockholders Ellen Prasinos and P. Evan Stephens. Defendants in the lawsuit are Tesla CEO and Chairman Elon Musk, as well as the Tesla board, SolarCity and certain members of the SolarCity board.

In its proxy filing on Monday, Tesla warns shareholders there could be other possible lawsuits challenging the blockbuster deal, and that the SolarCity transaction could be halted to delayed due to litigation.

“If any action is not resolved, the lawsuits could prevent or delay completion of the merger and result in substantial costs to Tesla and SolarCity, including any costs associated with the indemnification of its respective directors and officers,” the SEC filing states. “As such, if plaintiffs are successful in obtaining an injunction prohibiting the consummation of the merger or the other transactions contemplated by the (deal), then such injunction may prevent the merger from being completed, or from being completed within the expected timeframe.”

In the Delaware chancery court, the lawsuits allege that Tesla and that SolarCity and their respective board members had “aided and abetted breaches of fiduciary duties and that certain individual defendants would be unjustly enriched by the proposed merger.” Although he was reluctant to comment on pending litigation, ATRS Executive Director George Hopkins did offer to explain what motivated the $14.5 billion pension fund to file a lawsuit on behalf of Tesla shareholders.

“Initially, ATRS and its counsel conducted a thorough investigation of the proposed SolarCity transaction of Tesla before determining to file suit. That investigation provided material concerns about the justification and merits of the SolarCity transaction,” said Hopkins, an attorney.

The ATRS director added that the initial investigation also revealed material concerns about Tesla’s corporate governance practices in the transaction.

“Particularly of concern was the Tesla Board’s approach in addressing clear conflicts of interest at the board level. As a significant stockholder of Tesla, ATRS felt compelled to step forward in order to protect the interests of ATRS and all Tesla minority shareholders,” he said. “Protecting the interests of minority shareholders is something that I believe Tesla’s board has failed to do in the transaction.”

Since Tesla announced on Aug. 1 that it was acquiring SolarCity, the all-stock deal was been roundly criticized by Wall Street analysts due to the fact that Musk was the largest shareholder of both companies. Some Tesla investors have also complained that the SolarCity deal would likely slow Tesla’s growth plans to expand production of its iconic electric cars.

The original deal called for Tesla to acquire SolarCity in an all-stock transaction whereby SolarCity shareholders would receive 0.110 shares of Tesla for each share they owned, which closed at $25.37 per share on the day the deal was announced. In early Wednesday trading, SolarCity shares were down 30 cents at $18.30, while Tesla Motors stock was down $2.11 at $202.53.

Tesla has created quite a stir on Wall Street with Musk’s boasts that the Palo Alto, Calif.-based electric automaker could be valued at more than $700 billion in 10 years. At Monday’s stock price, the cash-burning carmaker’s market cap with nearly 148 million shares outstanding is a tidy $29.8 billion.

In the 100-plus page S-4 securities filing on Sept. 19, Tesla asks its shareholders to support the multibillion dollar SolarCity merger and provides a detailed prospectus of the arrangement with supportive deal evaluations from financial advisers Evercore Partners of New York City and New Orleans-based Lazard Freres.

Although no date had been set for a shareholder vote on the Tesla-SolarCity deal, the SEC proxy filing shows that the electric car giant had hope to call a meeting sometime this week.

“In response to questions from certain Tesla investors, and subject to the normal SEC review and comment process of our Form S-4 registration statement, we currently expect that the record date for the determination of Tesla stockholders entitled to receive notice of, and to vote at, the Tesla special stockholders meeting in connection with the SolarCity acquisition will be sometime during the week of Sept. 16,” the company said in statement posted on its website.

Hopkins did not provide details on how many shares of Tesla stock that ATRS owns. However, under of the former Arkansas legislator’s helm with the system, the state’s largest public pension fund has been more aggressive in protecting ATRS members from bad investments through class action filings and other legal means.

Earlier this month, New York City securities and class action law firm Labaton Sucharow LLP announced the settlement of a pending $300 million lawsuit with Wall Street financial service giant State Street Corp. on behalf of the Arkansas Teacher Retirement System (ATRS), the lead plaintiff in a federal case going back more than five years.