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> the board behaved very differently during the acquisition (e.g., pushing back on Elon's asks), so they were deemed to be sufficiently independent for that tra

> the board behaved very differently during the acquisition (e.g., pushing back on Elon's asks), so they were deemed to be sufficiently independent for that transaction. So they were not "Musk puppets". If they had been, they would not have been capable of pushing back at any time. Why was the deal assumed to be unfair? And how could anyone prove that a deal was fair?

aw1621107 3y ago
> So they were not "Musk puppets". If they had been, they would not have been capable of pushing back at any time. What the board could have done counts for very little, if anything. All that matters is what they did (or in this case, did not) do. > Why was the deal assumed to be unfair? That's what Delaware law/precedent requires given the facts of the case. The judge found Musk to be effectively in control of the company for the purposes of the transaction, which made it a conflicted-controller transaction. Under Delaware law, those types of transaction are subject to the highest level of judicial scrutiny - the "entire fairness" standard - where both the process (how the deal was made) and the price (the terms of the deal) need to be proven fair. By default, the burden of proof rests on the defendants (Musk/Tesla, in this case), but Delaware law allows the burden of proof to be shifted to the plaintiffs by using a well-functioning committee of independent directors and/or through a fully-informed stockholder vote (IIRC the opinion says either one suffices, but I've seen commentary that seems to state both are needed, so I'm not sure what the exact conditions are). The judge found that the compensation committee was not well-functioning and that the directors on it were not independent. In addition, she ruled that the shareholder vote was not fully informed due to material deficiencies in the proxy Tesla sent out. As a result, Musk/Tesla failed to meet the requirements to shift the burden of proof. If they had succeeded in shifting the burden of proof, the deal would be assumed to be fair, and the plaintiff would need to show the deal was unfair. > And how could anyone prove that a deal was fair? They'd need to show the process and the price were fair. The former includes looking at the initiation, timing, structure, negotiation, and approval of the process, and while the latter does seem vague in comparison it seems to involve showing the court that the price paid falls within a range of fairness. In fact, Tesla faced the same challenge of proving entire fairness during the SolarCity acquisition and succeeded. They showed that the price they paid was fair (enough), and despite flaws in the process there were enough elements of fairness in the process to avoid dooming the deal.
- abduhl 3y ago
  >> the opinion says either one suffices, but I've seen commentary that seems to state both are needed I believe the current state of the law is that an independent board decision is usually good enough but can still be attacked while a fully informed shareholder vote cleanses all deals regardless of the impropriety.

aw1621107 3y ago

> So they were not "Musk puppets". If they had been, they would not have been capable of pushing back at any time. What the board could have done counts for very little, if anything. All that matters is what they did (or in this case, did not) do. > Why was the deal assumed to be unfair? That's what Delaware law/precedent requires given the facts of the case. The judge found Musk to be effectively in control of the company for the purposes of the transaction, which made it a conflicted-controller transaction. Under Delaware law, those types of transaction are subject to the highest level of judicial scrutiny - the "entire fairness" standard - where both the process (how the deal was made) and the price (the terms of the deal) need to be proven fair. By default, the burden of proof rests on the defendants (Musk/Tesla, in this case), but Delaware law allows the burden of proof to be shifted to the plaintiffs by using a well-functioning committee of independent directors and/or through a fully-informed stockholder vote (IIRC the opinion says either one suffices, but I've seen commentary that seems to state both are needed, so I'm not sure what the exact conditions are). The judge found that the compensation committee was not well-functioning and that the directors on it were not independent. In addition, she ruled that the shareholder vote was not fully informed due to material deficiencies in the proxy Tesla sent out. As a result, Musk/Tesla failed to meet the requirements to shift the burden of proof. If they had succeeded in shifting the burden of proof, the deal would be assumed to be fair, and the plaintiff would need to show the deal was unfair. > And how could anyone prove that a deal was fair? They'd need to show the process and the price were fair. The former includes looking at the initiation, timing, structure, negotiation, and approval of the process, and while the latter does seem vague in comparison it seems to involve showing the court that the price paid falls within a range of fairness. In fact, Tesla faced the same challenge of proving entire fairness during the SolarCity acquisition and succeeded. They showed that the price they paid was fair (enough), and despite flaws in the process there were enough elements of fairness in the process to avoid dooming the deal.

abduhl 3y ago
>> the opinion says either one suffices, but I've seen commentary that seems to state both are needed I believe the current state of the law is that an independent board decision is usually good enough but can still be attacked while a fully informed shareholder vote cleanses all deals regardless of the impropriety.