Family and Money Tie SolarCity Board to Prospective Buyer Teslaby and
Solar company directors have business, family links to Tesla
Two more directors recused from voting on $2.86 billion offer
Two more directors have recused themselves, Chief Technology Officer Peter Rive, and J.B. Straubel who holds the same title at Tesla. That leaves three people to vote on the offer, venture capital executives Nancy Pfund and John Fisher, who both provided backing to the two companies, and Donald Kendall Jr., the only person on the eight-member board who doesn’t have direct ties to the electric car company.
The deep connections between the two companies may create potential conflicts of interest, according to analysts and experts in governance issues. A few of the directors are related by blood, others have through longstanding personal and professional relationships and some made significant investments in both companies.
These ties mean it will be difficult for the board to evaluate the offer in an impartial manner, said Patrick Jobin, an analyst at Credit Suisse Group AG.
“Any special committee they put together is going to have issues with ties to the other side,” Jobin said in an interview. “Even the ones that recused themselves have the ability to influence the outcome.”
SolarCity is working with outside counsel to establish a process for a special board committee to review the offer, Jonathan Bass, a spokesman for the San Mateo, California-based company said in an e-mail. He confirmed Sunday that Rive and Straubel were recusing themselves.
If the board approves the deal, shareholders may question the decision, Jeffrey Osborne, an analyst at Cowen & Co., said in an e-mail. Tesla’s offer must be approved by SolarCity’s board and its shareholders.
“I think it would be a challenge for investors to accept the board’s advice,” Osborne said.
Starting at the top, Tesla Chief Executive Officer Elon Musk is also SolarCity’s chairman and the biggest shareholder in both with stakes exceeding 20 percent. He announced his recusal when the deal was announced June 21.
So did SolarCity CEO Lyndon Rive, Musk’s cousin and the solar company’s eighth-biggest investor. CTO Rive is his brother and the solar company’s No. 9 shareholder, according to data compiled by Bloomberg.
Antonio Gracias is on both companies’ boards. He’s CEO of the Chicago-based private equity company Valor Equity Management, an early backer of Tesla and SolarCity, and also has recused himself.
“The conflict is very ripe,” said Steven Davidoff Solomon, a professor at the University of California at Berkeley’s School of Law. “Elon Musk is entering into a transaction where he’s going to make hundreds of millions of dollars. The market isn’t happy about it. And they’re not playing by the usual conflict playbook. That’s a triple strike against them.”
Investors have already voiced dissent over the deal, and the governance issues raised by the proposal. Tesla shares slumped 10 percent June 22, the day after it was announced, and SolarCity is trading below the offer price of $26.50 to $28.50 a share.
SolarCity’s board has a corporate governance committee, responsible for “reviewing actual and potential conflicts of interest of board members and corporate officers,” according to its charter. It comprises three independent directors, who don’t have positions with the company. They do have Tesla connections.
Tesla CTO Straubel is one of the committee members. So Pfund, a managing partner at the venture capital company DBL Investors who was an early backer of both Tesla and SolarCity and served on Tesla’s board. The last is Fisher, managing director of Draper Fisher Jurvetson, which also provided early financing to both companies. His longtime partner Stephen Jurvetson sits on Tesla’s board.
The only SolarCity director without Tesla ties is Kendall, a venture capitalist who backed the solar company and joined its board in 2012. He’s on the audit committee.
“Any overlap of independent committees charged with reviewing the transaction would be a very significant concern,” said Ken Bertsch, executive director of the Council of Institutional Investors, a Washington-based non-profit group that advocates for shareholders’ rights.
The potential conflicts will weigh on shareholders, said Angelo Zino, an analyst at S&P Global Market Intelligence.
“The corporate governance concerns, and SolarCity’s well-documented financial position, will be at the forefront when investors vote,” Zino said. “That’s assuming that the board of SolarCity approves the deal.”