SolarCity Corp (NASDAQ:SCTY)’s merger with Tesla Motors Inc (NASDAQ:TSLA) has been approved. Due to four lawsuits, the $2.6 billion deal could be delayed, warned Elon Musk. Four shareholders contend that board members of both firms breached their fiduciary duties related to the proposed merger. Musk and others hoped to finalize the deal by the end of the year.
SolarCity Corp Merger With Tesla Hitting Another Snag
Ever since Musk announced the $2.6 billion buyout of SolarCity, he has received plenty of criticism. Everything from the deal reeking of nepotism to skepticism that the merger could work, Musk has had to answer all of the qualms. After speaking with some of the biggest shareholders in both SolarCity and Tesla, he received the approval he wanted. Once again, he has come across another hurdle.
Tesla announced that the proposed purchase of the solar firm could be delayed because of four lawsuits. A Securities and Exchange Commission (SEC) filing was also made public on Monday.
Reportedly, four lawsuits were filed this month in Delaware. With a possible injunction hanging over the merger, the deal may not be closed until sometime next year.
The four shareholders alleged in the lawsuit that the board members had violated their fiduciary duties in connection with the acquisition. They believe that Musk has a very close association with the SolarCity management. This, the plaintiffs argue, makes it nearly impossible for Tesla to be objective when it comes to merging with the solar firm.
Musk is the chairman of SolarCity. He is also related to two SolarCity executives and is good friends with other board members. Also, two SolarCity board members hold positions with Tesla.
Tesla has said that it will oppose the lawsuit and try to fight an injunction if happens.
“Simply because someone uses litigation to try to delay an acquisition does not mean it will be successful,” a Tesla official said in a statement. “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.”
Tesla shares have largely been unaffected by the news. Over the last five days, the stock has climbed more than five percent to $204. SolarCity has also not been impacted as its shares have risen nearly eight percent to just over $18.
SolarCity Corp Has Plenty of Good News
September has proven to be a very good month for the solar firm.
It was reported last week that SolarCity raised $305 million. The deal consisted of an 18-year loan syndicated to five institutional investors. This is the second time in the last few months SolarCity has raised this much money. In May, the solar firm raised roughly $227 million in a similar arrangement.
SolarCity seems enthusiastic over its new proposed product. The solar firm plans to target about five million U.S. homes with its new integrated solar rooftops. The product was announced by Musk in a conference call earlier this month.
This is just one of two products that has been unveiled. SolarCity plans to reveal its second major product sometime this year.
SolarCity is still struggling. It has total debt of $3.2 billion as of June 30. The company was only able to generate $308 million in revenue in the first six months of 2016.