willow_hiller
Well-Known Member
You think the board did their due diligence on the move of incorporation to Texas? No, they blindly follow Elons wishes just as was proven in the compensation lawsuit
Someone didn't read their definitive proxy statement for the Annual meeting. There's literally 43 pages of due diligence and justification. Here's some of it for you:
The final stage of the Special Committee’s redomestication decision was an in-depth comparison of remaining incorporated in Delaware or reincorporating in Texas. As explained further below, the Special Committee concluded that Delaware and Texas provide substantially equivalent bundles of economic, governance, and litigation rights for stockholders, at least on net (i.e., balancing relevant
considerations against one another) and as relevant to Tesla. This left three differentiating factors in the Special Committee’s view: Texas is Tesla’s home state; Texas statutory law on corporate constituencies would better align with Tesla’s mission-driven culture; and Delaware has an established and respected business court and the largest body of corporate case law in the country, whereas Texas just created a business court. The Special Committee balanced these considerations and concluded that, in its business judgment, it is in the best interests of Tesla and all of its stockholders for the Company to reincorporate in Texas. The Special Committee, in this evaluation, included an examination of the effect of the reincorporation on the economic, governance, and litigation rights of stockholders:
Economic Rights. The Special Committee considered whether there was any reason to
believe that Tesla shares would be economically less valuable under Texas law than under
Delaware law. The Special Committee concluded, based on the advice of its financial and
academic advisors, that there was no convincing evidence that reincorporating in Texas would
affect Tesla’s market value. In reaching this conclusion, the Special Committee and its advisors considered, among other things, related to market practices, that a company’s U.S. state of incorporation is not a factor commonly used in valuation methodologies. The Special
Committee’s financial advisor also considered whether there was evidence of a “Delaware
premium” through three quantitative analyses. First, they evaluated four market-implied valuation multiples from 2019 through 2023 for Fortune 500 companies: enterprise value/revenue; enterprise value/EBITDA; market capitalization/earnings; and market capitalization/book value. They did not find any observable valuation premium attributable to Delaware incorporation. Second, the Special Committee’s financial advisor also analyzed market return metrics for Fortune 500 companies from 2014 through 2023, and similarly found no observable premium attributable to Delaware incorporation. Finally, the Special Committee’s financial advisor reviewed four case studies of redomestications from Delaware to Texas over the last decade. They reported no observable pattern between redomestication and total stockholder return over the periods studied. In addition, the Special Committee considered conclusions from its academic advisor that existing academic literature strongly suggests that a “Delaware premium” is non-
existent or unknowable. The Special Committee concluded, based on the advice of its financial and academic advisors, that there is no reason to believe that being incorporated in Delaware increases Tesla’s market value. Of the S&P 500, approximately 35% are domiciled outside of Delaware. Seven of the top 20 by market capitalization are incorporated in their home state: Apple, Costco, Eli Lilly, Johnson
& Johnson, Merck, Microsoft, and Proctor & Gamble. Tesla would make eight. Notably, the Special Committee saw no indication that Microsoft’s earlier reincorporation from Delaware to its home state of Washington had a negative effect on Microsoft. In addition, the Special Committee evaluated whether and confirmed that the Texas Redomestication would not materially alter any other economic rights of Tesla stockholders. For example, Texas law would not alter the Company’s ability to pay dividends or buyback stock. As discussed below, at the Special Committee’s request, the Company confirmed that the Texas Redomestication will not have any materially adverse accounting, tax, or other financial implications, and will not affect the public trading of the Company’s shares. Further, the Texas Redomestication will result in the Company saving $250,000 per year in franchise tax payments to Delaware.
Governance Rights. The Special Committee concluded that governance rights are effectively
the same in both states. For example, both Delaware and Texas have similar rules on classified boards, the removal of directors, charter and bylaw amendments, blank check preferred stock, stock buybacks, dividends, and appraisal. Where there may appear to be distinctions, the Special Committee concluded that: most were differences in default rules that could be resolved in a Texas charter and bylaws (see the section “Certain Differences Between Delaware Charter and Bylaws and Texas Charter and Bylaws” below for the Company’s summary of certain differences between the Delaware Charter (as defined below) and Delaware Bylaws (as defined below) and the proposed Texas Charter and Texas Bylaws); some made no difference at least to Tesla (see the section “Comparison of Stockholder Rights under Delaware and Texas Law” below for the Company’s summary of certain differences between Delaware and Texas law); and one— Texas’s constituency statute— did not substantially alter stockholders’ rights but
does matter to Tesla (see the section “Certain Differences Between Delaware and Texas Law”
below for the Company’s summary of certain differences between Delaware and Texas law).
Litigation Rights. The Special Committee and its advisors engaged deeply with a wide range
of litigation topics and identified no areas in which Texas and Delaware law meaningfully diverged on matters of substance. In most areas the Special Committee examined, Texas and Delaware law apply essentially the same substantive rule, though Texas sometimes articulates it a bit differently. These include fiduciary duties owed to the corporation and the stockholders collectively, the corporate opportunities doctrine, director exculpation, indemnification, advancement, the business judgment rule, and the entire fairness standard of judicial review. In addition, the Special Committee considered that Delaware law has addressed a number of issues impacting public companies that Texas law has not (yet), including Caremark oversight claims, public company conflicted controller transactions, and intermediate scrutiny of defensive tactics. However, Texas’s silence in these areas does not mean that Texas law is or will be meaningfully different from Delaware law. Texas courts often look to Delaware law to fill gaps in Texas law, and the Special Committee and its advisors concluded that there was no reason to believe that Texas law would provide substantially lesser litigation rights than Delaware in areas where it is currently silent. The Special Committee and its advisors identified two important areas with differences between Texas and Delaware stockholder litigation: procedural
approaches to stockholder derivative claims and the fact that Texas recently created a specialized business court system, which is set to open on September 1, 2024. The Special Committee and its Delaware, Texas, and academic advisors concluded that these differences were procedural. In addition to its own analysis with its advisors, the Special Committee took note of commentary comparing Delaware and Texas law, including of ISS’s prior statement that “reincorporation from Delaware to Texas would appear to have a neutral impact on shareholders’ rights,” and Glass Lewis’ prior statement that “in most respects, the corporate statutes in Delaware and Texas are comparable.” Both have previously recommended voting in favor of multiple Delaware-to-Texas reincorporations.
