Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Usain]

Agreed. I’m 99% sure Facebook has a dual class share structure.

From what I have read, that dual class structure existed before Facebook went public. So it was allowed to continue. Elon said Delaware doesn't allow the structure to change after IPO.

The issue at hand is whether or not the share structure can be changed by moving incorporation to Texas and operating under Texas law.

 

[DarkandStormy]

This was an extreme, likely activist, position taken by this particular judge, for two reasons:

1. the Burden of Proof is NEVER on the Defendant, ALWAYS on the Plaintiff (this is so basic a mistake as to be staggeringly wrong in legal terms), and
2. the "Fairness" of the CEO Comp plan was voted upon, and settled, by the shareholders on March 31, 2018. If the Majority felt it was a unfair plan, the plan would not have been adopted by a vote of Shareholders.

This judge likely knew all this, and did it anyway simply because it will take 7+ years in appeal to get this farcical ruling undone. Elon's share options expire in less than 4 years (Jan 20, 2028), requiring a replacement Comp. plan by practical necessity. Then more court cases...

Here's the problem going forward for any new Comp plan: Would Elon trust that he won't get the 'Delaware Rug-pull' again after he's done all the hard work? I sure wouldn't, and sadly would vote against such a plan. Pay the man some cash, BoD! You got lots.

Sounds like you didn't read what the judge wrote.

 

[mongo]

Agreed. I’m 99% sure Facebook has a dual class share structure.

Facebook does, and is a Delaware corp, and had dual class implemented pre-IPO.

From what I have read, that dual class structure existed before Facebook went public. So it was allowed to continue. Elon said Delaware doesn't allow the structure to change after IPO.

The issue at hand is whether or not the share structure can be changed by moving incorporation to Texas and operating under Texas law.

As I linked to upthread, NASDAQ doesn't allow creation of supervoting shares after listing. They can create lower voting shares, but only as long as the higher can't be converted to the lower.

Generally, the issuance of a second class of lower voting stock is permitted under Nasdaq's Voting Rights Rule. However, the higher votingclass of security generally must not be eligible to convert into the lower-votingclass, and the creation of the lower voting class cannot be accompanied by an exchange offer. This is because the public shareholders could potentially be disenfranchised if they convert to the lower votingclass while the insiders retain the greater voting security.

 

[Mengy]

Sounds like you didn't read what the judge wrote.

I did, and in her own words, her judgement was more based on feeling and emotion rather than facts, evidence, judicial precedence, or law. She didn't like the board makeup, so she rescinded the plan they implemented.

 

[elasalle]

From what I have read, that dual class structure existed before Facebook went public. So it was allowed to continue. Elon said Delaware doesn't allow the structure to change after IPO.

The issue at hand is whether or not the share structure can be changed by moving incorporation to Texas and operating under Texas law.

Google created Class C shares after going public ...

https://money.usnews.com/investing/articles/goog-vs-googl-stock-difference

Pre IPO
When Google first went public in 2004, the company created two classes of common stock. Google sold shares of its Class A stock to the public. Google co-founders Larry Page and Sergey Brin, along with other Google executives, retained Class B shares

Post IPO
In 2014, Google underwent an unconventional stock split that created a third common stock class. Google completed a 2-for-1 split of its public Class A stock and created a new Class C stock that had no voting rights whatsoever

+ Due to the company's incorporating documents, as well as Delaware law, all classes of stock are perfectly equal except in regards to voting

 

[Usain]

The inability to add dual-class shares is a NASDAQ/ NYSE restriction, not a Delaware one.

So here's a crazy idea. Let's say you are right and the problem is not with the law but rather with the exchanges.

It wouldn't be that hard for Tesla to create a new stock exchange. It would be very Elon-esque to do something wild like that.

It might tank the stock at first, but cheap Tesla shares would be hard to resist. Tesla could do a huge buyback if the price got low enough. The share price would recover eventually and a new exchange would be born.

Yeah, crazy idea, right?

 

[DarkandStormy]

I did, and in her own words, her judgement was more based on feeling and emotion rather than facts, evidence, judicial precedence, or law. She didn't like the board makeup, so she rescinded the plan they implemented.

Yeah....the ruling was not about whether or not the judge "liked" the board makeup.

 

[CHGolferJim]

I did, and in her own words, her judgement was more based on feeling and emotion rather than facts, evidence, judicial precedence, or law. She didn't like the board makeup, so she rescinded the plan they implemented.

Precisely the approach that the appeals process is designed to fix.

 

[CorneliusXX]

The inability to add dual-class shares is a NASDAQ/ NYSE restriction, not a Delaware one.

Tesla might have to go shopping for a new exchange as well as a new domicile.

 

[Mengy]

Yeah....the ruling was not about whether or not the judge "liked" the board makeup.

She felt the board was biased so she rescinded the plan. Feeling, not evidence nor fact. Other boards have friends of CEOs on them, are they all subject to have their actions reversed by judges too?

 

[SOULPEDL]

So here's a crazy idea. Let's say you are right and the problem is not with the law but rather with the exchanges.

It wouldn't be that hard for Tesla to create a new stock exchange. It would be very Elon-esque to do something wild like that.

It might tank the stock at first, but cheap Tesla shares would be hard to resist. Tesla could do a huge buyback if the price got low enough. The share price would recover eventually and a new exchange would be born.

Yeah, crazy idea, right?

Not crazy - originality is what's needed here. IMO, Tesla is about to make even more history.
Also, I'd buy that dip in a snap!

 

[Drax7]

This highlights the current problem - how does the tesla board as currently constituted present another CEO comp plan that wont be struck down in another future lawsuit? At the very least they will need a different compensation committee, and perhaps add more independent directors (who are actually independent with no strong personal relationship or business history with Elon).

Remember it wasn’t the size or design of the comp plan that was the heart of the court case, but the people on the board who oversaw it and how they did / did not perform their roles in a sufficient manner.

Pure subterfuge, that’s the excuse, in reality they are going after him.

 

[Krugerrand]

Sorry for being obtuse (and english is not my first language), but how can Musk keep the shares which he got trough options, if court overrules option program?

The world works in mysterious ways, but you figured out why anyway.

The number of useful tasks that the bot cannot do due to limited foot mobility are near zero. Object manipulation with its hands, visual inspection and normal smartphone stuff will be 99% what it will do in the near future. It's a fun gimmick to make it walk more like a human, not a priority and not worth making the robot more complex and expensive for...

Ha! You’ll think differently when it can’t reach the gravy boat at the back of the shelf above the fridge because it’s too short, and can’t stand on tip toes, and the step-stool is broken because it broke last year, when it used it because it couldn’t reach that gravy boat because it couldn’t stand on tip toes.

Mark my words!

 

[SOULPEDL]

Pure subterfuge, that’s the excuse, in reality they are going after him.

Excellent use of this new word (I've never seen before). Thanks!

 

[Buckminster]

Who is Delaware anyway?

 

[CorneliusXX]

Why would we want to approve his package now? All the achievements have been met already. What’s in it for us to approve his compensation package at this stage. Just playing devils advocate here.

1. It is the right thing to do. We've had half a decade to sell our shares if we didn't like the package, and Elon has done what he signed up for and agreed with us.
2. If we believe he will create more value in the future and this plan convinces him to stay, it's also in our greedy and opportunistic self interest

 

[Stretch2727]

Yes - from a Q1 financial statement perspective, this is a mess.
The auditors don't provide an Audit Opinion on quarters (only on the 10K) so they won't weigh in on this but I believe Tesla will not make any adjustments to Q1 and then provide a lengthy footnote stating the financials may be impacted in the future for this issue.

Regarding your 2nd question, I can see a scenario where a new comp plan to handle the post 2018 period could be more expensive than the original $2.3B charge.

I did, and in her own words, her judgement was more based on feeling and emotion rather than facts, evidence, judicial precedence, or law. She didn't like the board makeup, so she rescinded the plan they implemented.

Precisely the approach that the appeals process is designed to fix.

My opinion is the board really has no option but to appeal. You can't just have shareholders re-vote now and all is well. It creates a financial mess if you try to award the same thing now as the value of the company is so much higher.

On top of this they need to figure out a go forward path to give an award up to 25% control which will likely involve more independent members and a move of the corporation.

The board is going to be busy if they are doing their job.

 

[MP3Mike]

So TSLA will move its incorporation to Texas. Reading between the lines, it looks like that has been in the works for awhile now but they needed to get the Delaware suit settled first.

This is how Elon will get his 25% control without giving him common stock. Apparently, there was no legal way to do this in Delaware but it can be done in Texas? No matter how the Delaware suit turned out, it looks like they were planning to move incorporation to Texas.

This could give shareholders everything they want.

No it wouldn't. I don't think the shareholders want TSLA removed from the S&P500.

Even if it was possible to add another class of shares, doing so would remove TSLA from the S&P500, since they changed the rules to not allow multiple classes of shares. (They grandfathered in the companies that already had multiple classes before they changed the rules.)

 

[2daMoon]

1. It is the right thing to do. We've had half a decade to sell our shares if we didn't like the package, and Elon has done what he signed up for and agreed with us.
2. If we believe he will create more value in the future and this plan convinces him to stay, it's also in our greedy and opportunistic self interest

Caveat:

3. Unless there is a way to meet Elon's goals with less induced volatility from share sales, better tax avoidance strategy (CA & IRS), and preservation of the wealth for long-term projects by letting the 2018 compensation package remain voided.


Honestly, I don't think Elon needs any convincing to stay. That concern is based on speculative FUD being slung around to stir the pot.

Thanks to the court ruling this is now more about creating a better plan that solves for the future while reducing harm to Tesla and TSLA in the execution of the package. I don't think that 55B "loss" would be all that worrisome to Elon if he has already crafted a better idea.

 

[Krugerrand]

"The process leading to the approval of Musk’s compensation plan was deeply flawed. Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf. He had a 15-year relationship with the compensation committee chair, Ira Ehrenpreis. The other compensation committee member placed on the working group, Antonio Gracias, had business relationships with Musk dating back over 20 years, as well as the sort of personal relationship that had him vacationing with Musk’s family on a regular basis. The working group included management members who were beholden to Musk, such as General Counsel Todd Maron who was Musk’s former divorce attorney and whose admiration for Musk moved him to tears during his deposition. In fact, Maron was a primary gobetween Musk and the committee, and it is unclear on whose side Maron viewed himself. Yet many of the documents cited by the defendants as proof of a fair process were drafted by Maron"

Yes, people in business cannot be friendly, like one another, have sat down to a meal and campfire talked, nor have worked cooperatively and fairly in the past, present or future for the benefit of ALL because those actions are a clear sign they are swindling ‘somebody’. (That’s sarcasm, Matias)

That which you quoted is just another example of why mankind deserves exactly what it gets. Instead, of admiring the ability of said group of people to work together as business partners AND friends, the assumption becomes that they’re probably trying to line their pockets at the expense of someone else BECAUSE that’s all the finger pointing people know and would do. (That’s not sarcasm)

Once again I am disgusted by people. If you invested in TSLA at the time of this event and didn’t already know Elon’s relationship with these people, you’re a dolt. None of the above was a secret. Even so, all you had to do was buy and hold your shares and be a richly rewarded dolt for doing nothing. (That’s not sarcasm)