Future of Elon Musk and Tesla are on the line this week as shareholders vote on massive pay package
UNB
Publish: 12 Jun 2024, 06:28 PM
DETROIT
(AP) - If Tesla shareholders vote against restoring Elon Musk's $44.9 billion
pay package Thursday, the CEO could deliver on threats to take artificial
intelligence research to one of this other companies. Or he could even could
walk away.
If they approve the
all-stock compensation package that was thrown out by a Delaware judge in
January, it would almost guarantee he would remain at the company he grew to be
the world leader in electric vehicles, shifting to AI and robotics including
autonomous vehicles, which Musk says is Tesla's future.
But even with reapproval
at Thursday's annual shareholders' meeting, which many analysts say is likely,
there would be uncertainty. Musk has threatened on X, his social medial
platform, to develop AI elsewhere if he doesn't get a 25% stake in Tesla (He owns
about 13% now). Musk's xAI recently received $6 billion in funding to develop
artificial intelligence.
Wedbush Analyst Dan Ives
said he expects the package to be overwhelmingly reapproved, ending a lot of
uncertainty with Musk. "This issue has been an overhang on Tesla's stock,
and this will be important to move this distraction in the rearview
mirror," Ives wrote in a note to investors.
Shares of Tesla Inc.
have slumped more than 30% this year with the company warning of "notably
lower" sales growth this year.
Also on the shareholder
ballot is the related issue of moving the electric vehicle maker's legal home
out of Delaware to Texas.
The move is designed to
escape from the Delaware court's oversight and possibly a ruling from
Chancellor Kathaleen St. Jude McCormick that invalidated Musk's pay package. In
a January opinion on a shareholder lawsuit, the judge determined that Musk
controlled the Tesla board and is not entitled to the landmark package once
worth nearly $56 billion.
Multiple institutional
investors have come out against that sizeable payout, some citing falling
vehicle sales, price cuts and the tumbling Tesla stock price. But Tesla's top
five institutional shareholders, Vanguard, BlackRock, State Street, Geode
Capital, and Capital Research either said they don't announce their votes or
wouldn't comment. They control about 17% of the votes.
Erik Gordon, a business
and law professor at the University of Michigan, said individual shareholders
are likely to vote for the package, and they own more than half of Tesla's
shares.
One investor who came
out against the package is Norway's sovereign wealth fund operated by Norges
Bank Investment Management. It said last weekend that it would vote no on
Thursday.
"While we
appreciate the significant value generated under Mr. Musk's leadership since
the grant date in 2018, we remain concerned about the total size of the award,
the structure given performance triggers, dilution, and lack of mitigation of
key person risk," Norges Bank Investment Management said in a prepared
statement.
In May, two big
shareholder advisory firms, ISS and Glass Lewis, recommended voting against the
package.
But Tesla and Musk have
unleashed a furious lobbying effort to get the package approved, in posts on X,
television appearances and in proxy filings with the U.S. Securities and
Exchange Commission.
"Only 2 days left
to protect and help grow the value of your investment in
$TSLA by voting FOR ratification of the 2018 CEO Performance Award," Tesla
posted on X early Tuesday.
Tesla Chairwoman Robyn
Denholm, in a letter to shareholders, wrote that the package was approved by
73% of the vote six years ago. "Because the Delaware Court second-guessed
your decision, Elon has not been paid for any of his work for Tesla for the
past six years that has helped to generate significant growth and stockholder
value. That strikes us - and the many stockholders from whom we already have
heard - as fundamentally unfair, and inconsistent with the will of the
stockholders who voted for it," she wrote.
Tesla has said the 2018
award incentivized Musk to create over $735 billion in value for shareholders
in the six years since it was approved.
If Tesla finalizes the
vote on moving the company's legal home to Texas before the vote on Musk's pay
package, and it manages to file the paperwork in Austin and get approval of the
move, then the effect of the Delaware court ruling could be in doubt. Reapproval
of the pay package would then be done as a Texas corporation and could fall
under the purview of Texas courts.
Anticipating a quick
move by Tesla, lawyers for the shareholder who filed the lawsuit seeking to
block Musk's pay deal, Richard Tornetta, filed motions in Delaware last month
seeking an order stopping Tesla from trying to move the case. Tesla responded in
letters to the judge that there is no cause for such concerns because they
won't seek a move. Besides, Tesla would still be a Delaware corporation at the
time of this week's shareholder vote, they wrote.
In an order denying Tornetta's
motions, Chancellor McCormick wrote that she interprets Tesla's letters to mean
it has no intention of relocating the case to Texas. "The defendants'
statements give me great comfort," she wrote.
Eric Talley, a Columbia
University law professor, said the lawyers are unlikely to try to move the case
because their livelihood is handling business cases in Delaware courts.
But it's also possible
that the unpredictable Musk could change lawyers.
McCormick, Talley said,
is telling the lawyers "OK, I'm going to believe you, but I'm going to be
really irritated if this is a big send up for these things that you said you're
not going to do."
Talley, who also is a
Tesla shareholder and said at present he plans to vote against Musk's pay,
expects Tesla to follow through with appealing McCormick's ruling to the
Delaware Supreme Court.