Case 3:18-cv-04865-EMC Document 251 Filed 04/15/20 Page 1 of 41
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`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`IN RE TESLA, INC. SECURITIES
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`LITIGATION.
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`Case No. 18-cv-04865-EMC
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`ORDER DENYING PLAINTIFF’S
`MOTION TO CONVERT OR,
`ALTERNATIVELY, TO STRIKE;
`GRANTING DEFENDANTS’ REQUEST
`FOR JUDICIAL NOTICE; AND
`DENYING DEFENDANTS’ MOTION
`TO DISMISS
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`Docket Nos. 227, 233
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`This consolidated class action lawsuit arises from Elon Musk’s Twitter and blog post(s) in
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`which he openly discussed funding for a transaction to take Tesla, Inc. (“Tesla”) from a publicly-
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`traded company to a private company. Lead Plaintiff Glen Littleton is a shareholder—and seeks
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`to represent a class of shareholders—who purchased or sold Tesla securities during the relevant
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`time period. Plaintiff alleges that Mr. Musk’s social-media posts contained false statements,
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`which led to a trading frenzy that artificially drove up the value of Tesla’s shares. Mr. Musk,
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`Tesla, and Tesla directors1 (collectively, “Defendants”) are the named defendants in this lawsuit.
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`Pending before the Court is Defendants’ motion to dismiss the Consolidated Complaint. Docket
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`No. 227 (“Mot.”). Plaintiff opposes the motion to dismiss, but he also moves to convert
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`Defendants’ motion to a motion for summary judgment or, in the alternative, to strike the motion
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`or portions thereof. Docket No. 233 (“MTC”).
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`1 Brad W. Buss, Robyn Denholm, Ira Ehrenpreis, Antonio J. Gracias, James Murdoch, Kimbal
`Musk, and Linda Johnson Rice (the “Director Defendants”).
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`Case 3:18-cv-04865-EMC Document 251 Filed 04/15/20 Page 2 of 41
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`I.
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`PROCEDURAL BACKGROUND
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`This action is a consolidation of nine lawsuits.2 The Court granted Glen Littleton’s motion
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`to serve as Lead Plaintiff under 15 U.S.C. § 78u-4(3)(B)(ii). Docket No. 152. Mr. Littleton
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`subsequently filed the Consolidated Complaint on behalf of himself and those similarly situated.
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`Docket No. 184 (“Compl.”). The Consolidated Complaint alleges Mr. Musk and Tesla violated
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`Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §78j, and SEC Rule 10b-5, 17
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`C.F.R. 240.10b-5. Id. ¶ 1. It further alleges that Tesla’s Board of Directors violated Section 20(a)
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`of the Securities Exchange Act, 15 U.S.C. § 78t. Id. This action seeks to represent a class of
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`shareholders who purchased and/or sold Tesla stock from August 7, 2018 to August 17, 2018 (the
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`“Class Period”). Id.
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`II.
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`FACTUAL BACKGROUND
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`The Court must assume all factual allegations3 in the Consolidated Complaint as true,
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`liberally construe them, and draw all reasonable inferences in Plaintiff’s favor. In re Xytronyx Sec.
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`Litig., 1992 WL 427475, at *2 (S.D. Cal. Oct. 14, 1992) (citing Plaine v. McCabe, 797 F.2d 713,
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`723 (9th Cir.1986)). As discussed below, however, the pleadings are subject to the requirements
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`of PLSRA and Federal Rule of Civil Procedure 9(b). The Consolidated Complaint alleges the
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`following:
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`A.
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`Tesla’s Vehicle Production
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`Mr. Musk is the co-founder, former Chairman of the Board, and current Chief Executive
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`Officer of Tesla, which “designs, develops, manufactures, and sells electronic vehicles.” Compl.
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`¶¶ 2, 38. Tesla produces the Model S, the Model X, and the Model 3. Id. In 2012 and 2015, the
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`2 Case Nos. 18-cv-04865-EMC; 18-cv-04876-EMC; 18-cv-04912-EMC; 18-cv-04939-EMC;18-
`cv-04948-EMC; 18-cv-05258-EMC; 18-cv-05463-EMC; 18-cv-05470-EMC; and 18-cv-05899-
`EMC.
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`3 Some of the factual allegations derive from sources subject to judicial notice, such as the SEC
`Complaint filed on September 27, 2018. Defendants consented to the settlements and entries of
`judgments. This Court finds Plaintiff’s reliance on allegations contained in the SEC Complaint
`permissible. See Evanston Police Pension Fund v. McKesson Corp., 411 F. Supp. 3d 580, 593
`(N.D. Cal. 2019) (citing In re VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694, 706–07 (9th Cir.
`2012) [relying on allegations in an SEC complaint incorporated into the plaintiff's pleadings]; In
`re Musical Instruments and Equip. Antitrust Litig., 798 F.3d 1186, 1199 (9th Cir. 2015) [relying
`on allegations in an FTC complaint and settlement]).
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`Case 3:18-cv-04865-EMC Document 251 Filed 04/15/20 Page 3 of 41
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`Model S and Model X experienced production issues, so investors closely followed Tesla’s 2017
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`rollout of the Model 3, which was anticipated to be built in large quantities due to it being a mass-
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`market sedan. Id. ¶¶ 38, 39. From October 2017 through January 2018, Tesla experienced
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`production problems for its Model 3 because of issues related to manufacturing lithium-ion battery
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`cells. Id. ¶¶ 40, 44.
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`These production difficulties led numerous short-selling investors to target Tesla. Id. ¶ 45.
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`As one example pled in the Consolidated Complaint, Stanphyl Capital pursued a significant short-
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`term investment in Tesla; a CNBC report subsequently quoted this investor making the following
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`statement:
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`While I’ve no doubt that Tesla will eventually work out its Model 3
`vehicle production problems, the base model will cost Tesla at least
`mid-$40,000s to build. The company will never deliver more than a
`token few for less than the current 400,000 a year. And even at
`those higher prices Tesla will never come anywhere close to its
`promised [profitability].
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`Id. (alteration in original). At the end of January 2018, Tesla’s short interests were 30 million
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`shares, which amounted to 18% of the company’s outstanding shares. Id. ¶ 46.
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`On April 3, 2018, Tesla revealed in a press release that instead of producing 2,500 Model 3
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`vehicles per week as promised, it was producing slightly more than 2,000. Id. ¶ 47. Based on this
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`shortcoming, the Wall Street Journal published an article describing Mr. Musk’s reputation for
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`setting “ambitious deadlines that he fail[ed] to meet on time.” Id. The same day, Tesla’s short
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`interest grew to 32 million shares, representing 19% of its outstanding shares. Id. ¶ 48. A week
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`later, on April 11, 2018, a CNBC article entitled “Tesla is the biggest short in the US stock
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`market” reported that Tesla had $10.7 billion in short shares, which was more than 25% of Tesla’s
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`available stock. Id. ¶ 49.
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`B.
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`Mr. Musk’s Public Animosity Towards Short-Selling Investors
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`According to the Consolidated Complaint, Mr. Musk publicly displayed his animosity to
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`those who were short-selling Tesla stock. Id. ¶ 50. On May 2, 2018, Mr. Musk responded to
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`analysts’ questions about Tesla’s first-quarter earnings by responding “Boring, bonehead
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`questions are not cool, Next?” and “These questions are so dry. They’re killing me.” Id. On
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`Case 3:18-cv-04865-EMC Document 251 Filed 04/15/20 Page 4 of 41
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`Twitter, Mr. Musk defended his answers by posting “two sell-side analyst who were trying to
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`justify their Tesla short thesis.” Id. He further tweeted the following: “Oh and uh short burn of
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`the century comin [sic] soon. Flamethrowers should arrive just in time.” And immediately after,
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`he posted “Looks like sooner than expected. The sheer magnitude of short carnage will be unreal.
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`If you’re short, I suggest tiptoeing quietly to the exit . . . .” Id. ¶ 52.
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`On May 7, 2018, Mr. Musk bought $9.85 million worth of Tesla shares to force a burst of
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`the short-covering, which caused Tesla’s stock price to increase from $297.50 to $302.77. Id. ¶
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`53. Mr. Musk did this again on June 12, 2018 to maintain Tesla’s stock price while Tesla laid off
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`46,000 employees (roughly 9% of the workforce). Id. ¶ 54. A few days later, Mr. Musk tweeted
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`that “[the shorts] have about three weeks before their short position explodes.” Id. ¶ 55 (alteration
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`in original). By the end of July 2018, Tesla’s short-stock interest was 35 million shares (20% of
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`outstanding stock). Id. ¶ 62.
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`C.
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`Mr. Musk’s Meeting with Saudi Arabia’s Public Investment Fund
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`On July 31, 2018, Mr. Musk met with representatives from the Public Investment Fund
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`(“PIF”), which expressed interest in taking Tesla private, if Tesla agreed to build a production
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`facility in the Middle East. Id. ¶ 63. No decision resulted from this meeting. Id. ¶ 64. On August
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`2, 2018, Mr. Musk sent an e-mail to Tesla’s Board of Directors, CFO, and General Counsel with a
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`subject line reading “Offer to Take Tesla Private at $420” in which he explained the move would
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`avoid the “constant defamatory attacks by the short-selling community” and requested the “matter
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`be put to a shareholder vote at the earliest opportunity” because the “offer expires in 30 days.” Id.
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`¶ 69.
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`In response to Mr. Musk’s e-mail, the Board held a conference call on August 3, 2018,
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`during which Mr. Musk revealed that PIF was interested in funding a transaction for Tesla to go
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`private, conditioned on Tesla building a production facility in the Middle East. Id. ¶ 72.
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`According to Paragraph 72 of the Consolidated Complaint, “On August 3, 2018, in response to
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`Musk’s email, the Board held a telephonic meeting at which time Musk informed the board that
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`the Public Investment Fund was interested in funding a going-private transaction and that the fund
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`Case 3:18-cv-04865-EMC Document 251 Filed 04/15/20 Page 5 of 41
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`was interested in having Tesla build a production facility in the Middle East.”4 Some Board
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`members considered the condition of having a Middle East production facility to be a “non-
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`starter,” and others described it as “really difficult for small investors” to retain shareholders. Id.
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`However, the Board authorized Mr. Musk to contact investors to gauge their interest in
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`participating in such a transaction. Id. On August 6, 2018, Mr. Musk spoke with a private equity
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`fund partner who described the structure of Tesla’s contemplated move as “unprecedented” in his
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`experience because Mr. Musk desired the number of shareholders in a private Tesla to be less than
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`300, but Tesla had over 800 institutional investors at the time. Id. ¶ 73.
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`D. Mr. Musk’s August 7, 2018 Tweet And Subsequent Tweets/E-mails/Blog Posts
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`On August 7, 2018,5 Mr. Musk posted the following message on his Twitter account: “Am
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`considering taking Tesla private at $420. Funding secured.” Id. ¶ 74 (emphasis added).
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`According to the Consolidated Complaint, this tweet resulted in the following exchange of text
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`messages:
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`• Martin Viecha, Tesla’s Senior Director of Investor Relations, sent a text message to
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`Mr. Musk asking, “Was this text legit?”
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`• A Tesla investor texted Sam Teller (Tesla’s Director, Office of the CEO) asking,
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`“What’s Elon’s tweet about? Can’t make any sense of it. Would be incredibly
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`disappointing for shareholders that have stuck it out for so long.”
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`• A reporter also texted Mr. Teller saying, “Quite a tweet! (Is it a joke?).”
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`Id. ¶¶ 74–76. Further, Mr. Musk responded to comments related to his tweet and posted new
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`tweets:
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`• A Twitter user asked, “At what price?” and Mr. Musk responded “420.”
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`• Mr. Musk tweeted, “I don’t have a controlling vote now & wouldn’t expect any
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`shareholder to have one if we go private. I won’t be selling in either scenario.”
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`4 However, Plaintiff does not attribute how he knows this detail. Instead, Plaintiff relies on the
`SEC Complaint, which discusses this Middle East facility as a condition for funding.
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` 5
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` Unless otherwise stated, all alleged messages and tweets in Subsection D occurred on August 7,
`2018.
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`Case 3:18-cv-04865-EMC Document 251 Filed 04/15/20 Page 6 of 41
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`• Mr. Musk then tweeted, “My hope is *all* current investors remain with Tesla even
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`if we’re private. Would create special purpose fund enabling anyone to stay with
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`Tesla. Already do this with Fidelity’s SpaceX.”
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`• A Twitter user asked, “Could we still invest once private?” to which Mr. Musk
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`responded, “Yes, but liquidity events would be limited to every 6 months or so
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`(like SpaceX).”
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`• Another Twitter user posted, “Or if you do take Tesla private, please have a
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`provision for retail investors who have held Tesla shares prior to Dec 31, 2016 that
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`those shares will be converted into private shares in the new private company . . . .”
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`Mr. Musk responded, “Absolutely. Am super appreciative of Tesla shareholders.
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`Will ensure their prosperity in any scenario.”6
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`• Mr. Musk then posted the following, “Shareholders could either to [sic] at 420 or
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`hold shares & go private.”
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`Id. ¶¶ 77–82.
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`Following this Twitter activity, a reporter e-mailed Mr. Musk with a subject line, “Are you
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`just messing around?” in which the reporter wrote “Reaching out to see what’s going on with your
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`tweets about taking the company private? Is this just a 420 joke gone awry? Are you serious? It
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`seems like you are dancing into some pretty tricky legal territory by messing about with the
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`markets this way. Is there an actual explanation coming?” Id. ¶ 83. The Consolidated Complaint
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`does not allege that Mr. Musk responded to this e-mail, but it alleges that he went back on Twitter
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`and responded further to comments. Mr. Musk responded to a Twitter comment about a “forced
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`buyout” with the following answer: “Def. no forced sales. Hope all shareholders remain. Will be
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`way smoother & less disruptive as a private company. Ends negative propaganda from shorts.”
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`Id.
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`Mr. Musk e-mailed Tesla employees with a subject line entitled “Taking Tesla Private.”
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`Id. ¶ 84. This e-mail became publicly available on Tesla’s blog, and read as follows:
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`6 After this tweet, “HASDAQ halted trading in Tesla stock due to the increased volatility” for one
`and a half hours. Id. ¶ 81.
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`Case 3:18-cv-04865-EMC Document 251 Filed 04/15/20 Page 7 of 41
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`Taking Tesla Private
`August 7, 2018
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`The following email was sent to Tesla employees today:
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`Earlier today, I announced that I’m considering taking Tesla
`private at a price of $420/share. I wanted to let you know my
`rationale for this, and why I think this is the best path forward.
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`First, a final decision has not yet been made, but the reason
`for doing this is all about creating the environment for Tesla to
`operate best. As a public company, we are subject to wild swings in
`our stock price that can be a major distraction for everyone working
`at Tesla, all of whom are shareholders. Being public also subjects
`us to the quarterly earnings cycle that puts enormous pressure on
`Tesla to make decisions that may be right for a given quarter, but
`not necessarily right for the long-term. Finally, as the most shorted
`stock in the history of the stock market in the history of the stock
`market, being public means that there are large numbers of people
`who have the incentive to attack the company.
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` I
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` fundamentally believe that we are at our best when
`everyone is focused on executing, when we can remain focused on
`our long-term mission, and when there are not perverse incentives
`for people to try to harm what we’re all trying to achieve.
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`This is especially true for a company like Tesla that has a
`long-term, forward-looking mission. SpaceX is a perfect example:
`it is far more operationally efficient, and that is largely due to the
`fact that it is privately held. This is not to say that it will make sense
`for Tesla to be private over the long-term. In the future, once Tesla
`enters a phase of slower, more predictable growth, it will likely
`make sense to return to the public markets.
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`Here’s what I envision being private would mean for all
`shareholders, including all of our employees.
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`First, I would like to structure this so that all shareholders
`have a choice. Either they can stay investors in a private Tesla or
`they can be bought out at $420 per share, which is a 20% premium
`over the stock price following our Q2 earnings call (which had
`already increased by 16%). My hope is for all shareholders to
`remain, but if they prefer to be bought out, then this would enable
`that to happen at a nice premium.
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`Second, my intention is for all Tesla employees to remain
`shareholders of the company, just as is the case at SpaceX. If we
`were to go private, employees would still be able to periodically sell
`their shares and exercise their options. This would enable you to
`still share in the growing value of the company that you have all
`worked so hard to build over time.
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`Third, the intention is not to merge SpaceX and Tesla. They
`would continue to have separate ownership and governance
`structures. However, the structure envisioned for Tesla is similar in
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`Case 3:18-cv-04865-EMC Document 251 Filed 04/15/20 Page 8 of 41
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`many ways to the SpaceX structure: external shareholders and
`employee shareholders have an opportunity to sell or buy
`approximately every six months.
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`Finally, this has nothing to do with accumulating control for
`myself. I own about 20% of the company now, and I don’t envision
`that being substantially different after any deal is completed.
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`Basically, I’m trying to accomplish an outcome where Tesla
`can operate at its best, free from as much distraction and short-term
`thinking as possible, and where there is as little change for all of our
`investors, including all of our employees, as possible.
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`This proposal to go private would ultimately be finalized
`through a vote of our shareholders if the process ends the way I
`expect it will, as private Tesla would ultimately be an enormous
`opportunity for all of us. Either way, the future is very bright and
`we’ll keep fighting to achieve our mission.
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`Thanks,
`Elon
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`Id. ¶ 84. Mr. Musk then tweeted: “Investor support is confirmed. Only reason why this is not
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`certain is that it’s contingent on a shareholder vote.” Id. ¶ 85 (emphasis added). On August 7,
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`2018, Tesla’s stock closed with a 10% increase from its opening price—rising from $343.84 per
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`share to $379.59 per share. Id. ¶ 86
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`The Consolidated Complaint alleges Mr. Viecha (Tesla’s Senior Director of Investor
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`Relations) received three e-mails inquiring about Mr. Musk’s tweets. First, an analyst asked the
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`following, “In the tweet, [Mr. Musk] said financing is secured but in the letter he doesn’t address
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`this. Can you clarify?” Id. ¶ 87. Mr. Viecha responded saying “I can only say that the first Tweet
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`clearly stated that ‘financing is secured.’ Yes, there is a firm offer.” Id. (emphasis added).
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`Second, another analyst e-mailed Mr. Viecha and another Tesla investor-relations member and
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`asked “Had some questions/clarifications on today’s news and blog post. Can either of you
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`speak?” Mr. Viecha responded that “[A]part from what has been tweeted and what was written in
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`a blog post, we can’t add anything else. I only want to stress that Elon’s first tweet, which
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`mentioned ‘financing secured’ is correct.” Id. ¶ 88 (emphasis added). Lastly, the following
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`exchange occurred after Mr. Viecha asked if the analyst read Tesla’s “official blog post on this
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`topic[]”:
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`• Analyst: “I did. Nothing on funding though?” Id. ¶ 89.
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`Case 3:18-cv-04865-EMC Document 251 Filed 04/15/20 Page 9 of 41
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`• Mr. Viecha: The very first tweet simply mentioned ‘Funding secured’ which
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`means there is a firm offer. Elon did not disclose details of who the buyer is.” Id.
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`• Analyst: “Firm offer means there is a commitment letter or is this a verbal
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`agreement?” Id.
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`• Mr. Viecha: “I actually don’t know, but I would assume that given we went full-
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`on public with this, the offer is as firm as it gets.” Id. (emphasis added).
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`E.
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`The Stock Market’s Reaction
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`The Consolidated Complaint alleges that various investors and analysts7 reacted to Mr.
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`Musk’s August 7, 2018 tweet. See id. ¶¶ 90–92. The day following Mr. Musk’s tweet, on August
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`8, 2018, Tesla issued a press release on its website and on Globe Newswire:
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`Statement from the following members of Tesla’s Board of
`Directors: Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio
`Gracias, Linda Johnson Rice, and James Murdoch.
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`PALO ALTO, Calif., Aug. 08, 2018 (GLOBE NEWSWIRE) -- Last
`week, Elon openly discussed with the board about taking the
`company private. This included discussions as to how being private
`could better serve Tesla’s long-term interests, and also addressed the
`funding for this to occur. The board has met several times over the
`last week and is taking the appropriate next steps to evaluate this.
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`Id. ¶ 93. At the close of trading on August 8, 2018, Tesla’s stock price dropped 2.5%—from
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`$379.59 to $370.34 because “[c]ontrary to what Musk had said on August 7, 2018, the press
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`release from Tesla’s Board did not state that funding for a going-private transaction had been
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`‘secured.’” Id. ¶¶ 94, 191. On August 9, 2018, Tesla’s stock closed with a further drop from
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`$370.34 to $352.45, which reflected a 5% decline, due to the Wall Street Journal’s publication of
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`an SEC investigation into the August 7, 2018 tweet. Id. ¶¶ 99, 192.
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`On August 10, 2018, Mr. Musk posted the following tweet: “Short shorts coming soon to
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`Tesla merch[andise].” Id. ¶ 100 (alteration in original). A few days later, on August 13, 2018,
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`Mr. Musk posted on Tesla’s blog with the title reading “Update on Taking Tesla Private” and
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`wrote the following:
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`7 E.g., RBC Capital Markets; Morningstar Equity Research; Jeffries; J.P. Morgan; Evercore;
`Phoenix Financial Services; CNBC; and Bloomberg, etc.
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`Case 3:18-cv-04865-EMC Document 251 Filed 04/15/20 Page 10 of 41
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`As I announced last Tuesday, I’m considering taking Tesla private
`because I believe it could be good for our shareholders, enable Tesla
`to operate at its best, and advance our mission of accelerating the
`transition to sustainable energy. As I continue to consider this, I
`want to answer some of the questions that have been asked since last
`Tuesday.
`
`What has happened so far?
`
`On August 2nd, I notified the Tesla board that, in my personal
`capacity, I wanted to take Tesla private at $420 per share. This was
`a 20% premium over the ~$350 then current share price (which
`already reflected a ~16% increase in the price since just prior to
`announcing Q2 earnings on August 1st). My proposal was based on
`using a structure where any existing shareholder who wished to
`remain as a shareholder in a private Tesla could do so, with the $420
`per share buyout used only for shareholders that preferred that
`option.
`
`After an initial meeting of the board’s outside directors to discuss
`my proposal (I did not participate, nor did Kimbal), a full board
`meeting was held. During that meeting, I told the board about the
`funding discussions that had taken place (more on that below) and I
`explained why this could be in Tesla’s long-term interest.
`
`At the end of that meeting, it was agreed that as a next step, I would
`reach out to some of Tesla’s largest shareholders. Our largest
`investors have been extremely supportive of Tesla over the years,
`and understanding whether they had the ability and desire to remain
`as shareholders in a private Tesla is of critical importance to me.
`They are the ones who believed in Tesla when no one else did and
`they are the ones who most believe in our future. I told the board
`that I would report back after I had these discussions.
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`Why did I make a public announcement?
`
`The only way I could have meaningful discussions with our largest
`shareholders was to be completely forthcoming with them about my
`desire to take the company private. However, it wouldn’t be right to
`share information about going private with just our largest investors
`without sharing the same information with all investors at the same
`time. As a result, it was clear to me that the right thing to do was
`announce my intentions publicly. To be clear, when I made the
`public announcement, just as with this blog post and all other
`discussions I have had on this topic, I am speaking for myself as a
`potential bidder for Tesla.
`
`Why did I say “funding secured”?
`
`Going back almost two years, the Saudi Arabian sovereign wealth
`fund has approached me multiple times about taking Tesla private.
`They first met with me at the beginning of 2017 to express this
`interest because of the important need to diversify away from oil.
`They then held several additional meetings with me over the next
`year to reiterate this interest and to try to move forward with a going
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`Case 3:18-cv-04865-EMC Document 251 Filed 04/15/20 Page 11 of 41
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`private transaction. Obviously, the Saudi sovereign fund has more
`than enough capital needed to execute on such a transaction.
`
`Recently, after the Saudi fund bought almost 5% of Tesla stock
`through the public markets, they reached out to ask for another
`meeting. That meeting took place on July 31st. During the meeting,
`the Managing Director of the fund expressed regret that I had not
`moved forward previously on a going private transaction with them,
`and he strongly expressed his support for funding a going private
`transaction for Tesla at this time. I understood from him that no
`other decision makers were needed and that they were eager to
`proceed.
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` left the July 31st meeting with no question that a deal with the
`Saudi sovereign fund could be closed, and that it was just a matter
`of getting the process moving. This is why I referred to “funding
`secured” in the August 7th announcement.
`
`Following the August 7th announcement, I have continued to
`communicate with the Managing Director of the Saudi fund. He has
`expressed support for proceeding subject to financial and other due
`diligence and their internal review process for obtaining
`approvals. He has also asked for additional details on how the
`company would be taken private, including any required percentages
`and any regulatory requirements.
`
`Another critical point to emphasize is that before anyone is asked to
`decide on going private, full details of the plan will be provided,
`including the proposed nature and source of the funding to be used.
`However, it would be premature to do so now. I continue to have
`discussions with the Saudi fund, and I also am having discussions
`with a number of other investors, which is something that I always
`planned to do since I would like for Tesla to continue to have a
`broad investor base. It is appropriate to complete those discussions
`before presenting a detailed proposal to an independent board
`committee.
`
`It is also worth clarifying that most of the capital required for going
`private would be funded by equity rather than debt, meaning that
`this would not be like a standard leveraged buyout structure
`commonly used when companies are taken private. I do not think it
`would be wise to burden Tesla with significantly increased debt.
`
`Therefore, reports that more than $70B would be needed to take
`Tesla private dramatically overstate the actual capital raise needed.
`The $420 buyout price would only be used for Tesla shareholders
`who do not remain with our company if it is private. My best
`estimate right now is that approximately two-thirds of shares owned
`by all current investors would roll over into a private Tesla.
`
`What are the next steps?
`
`As mentioned earlier, I made the announcement last Tuesday
`because I felt it was the right and fair thing to do so that all investors
`had the same information at the same time. I will now continue to
`talk with investors, and I have engaged advisors to investigate a
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`Case 3:18-cv-04865-EMC Document 251 Filed 04/15/20 Page 12 of 41
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`range of potential structures and options. Among other things, this
`will allow me to obtain a more precise understanding of how many
`of Tesla’s existing public shareholders would remain shareholders if
`we became private.
`
`If and when a final proposal is presented, an appropriate evaluation
`process will be undertaken by a special committee of Tesla’s board,
`which I understand is already in the process of being set up, together
`with the legal counsel it has selected. If the board process results in
`an approved plan, any required regulatory approvals will need to
`be obtained and the plan will be presented to Tesla
`shareholders for a vote.
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`Id. ¶ 103 (emphasis added in italics). Mr. Musk then tweeted the following on August 13, 2018:
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`“I’m excited to work with Silver Lake and Goldman Sachs as financial advisors, plus Wachtell,
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`Lipton, Rosen & Katz and Munger, Tolles & Olson as legal advisors, on the proposal to take Tesla
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`private.” Id. ¶ 104 (emphasis added). The next day, Tesla issued the following statement
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`regarding Tesla’s Board and the going-private transaction:
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`Tesla, Inc. (the “Company”) announced today that its Board of
`Directors has formed a special committee comprised of three
`independent directors to act on behalf of the Company in connection
`with Elon Musk’s previously announced consideration of a
`transaction to take the Company private (the “Going Private
`Transaction”). The special committee has not yet received a formal
`proposal from Mr. Musk regarding any Going Private Transaction
`nor has it reached any conclusion as to the advisability or feasibility
`of such a transaction.
`
`The special committee is composed of Brad Buss, Robyn Denholm
`and Linda Johnson Rice. The special committee has retained
`Latham & Watkins LLP as its legal counsel and intends to retain an
`independent financial advisor to assist in its review of a formal
`proposal once received. The Company has separately retained
`Wilson Sonsini Goodrich & Rosati as its legal counsel in this matter.
`
`The special committee has the full power and authority of the Board
`of Directors to take any and all actions on behalf of the Board of
`Directors as it deems necessary to evaluate and negotiate a potential
`Going Private Transaction and alternatives to any transaction
`proposed by Mr. Musk. The special committee’s grant of authority
`provides that no Going Private Transaction will be consummated
`without the approval of the special committee. The special
`committee expects to provide a further update concerning the
`process associated with Mr. Musk’s proposal as soon as practicable.
`
`No assurances can be given regarding the likelihood, terms and
`deta