Editorial: In Musk ruling, Chancery proves its reputation

To say the least, it’s been an interesting few months for the world’s wealthiest, mercurial man Elon Musk.

In December, he quietly became a father to a new baby girl named Exa Dark Sideræl Musk. The heir to the world’s great fortune born by surrogate was accidentally revealed during a Vogue interview with his partner, the musician Grimes.

In early 2022, he began quietly investing in Twitter, one of the world’s most popular social media platforms where he has largely cultivated his personal brand. And when I say “investing,” I mean he bought more than $2 billion worth of its stock over three months to become its largest shareholder.

The company, Wall Street and the media weren’t entirely sure what to make of it all. Musk has a playful relationship with the platform, creating an often-confusing mix of serious business updates about his companies Tesla and SpaceX and a hodgepodge of memes and sarcastic jokes.

At first, Twitter’s founder and a personal friend of Musk, Jack Dorsey, embraced the investment and asked Musk to join the company’s board. Musk, however, had other ideas.

He decided to seek to buy the company in what is the largest take-private buyout of a public company in decades. After days of internal debate, Twitter’s board approved the deal worth $44 billion, which will see Musk cash out Tesla stock and fund $21 billion in his own money.

In one of the most mind-boggling descriptions of the deal I’ve seen: if you earned $200,000 every day from the moment Christopher Columbus arrived in the Americas until today, you still wouldn’t have enough money to buy Twitter at that price. But Musk does.

And if you thought that might temper the billionaire’s antics on Twitter, well, you were wrong. Just days after announcing the deal, he was criticizing some of the company’s top executives and joking about buying Coca-Cola next to put cocaine back in the soda.

Amid all of that noise, Musk quietly earned a major legal victory here in Wilmington.

On April 27, outgoing Vice Chancellor Joseph R. Slights III ruled in Musk’s favor in a shareholder lawsuit that could have left him personally liable for as much as $2 billion, which would have been a record-setting judgment against a sole executive.

At the heart of the case was an interesting question: What determines a “controlling interest”? Musk held only 22% of Tesla’s stock when the company’s board and shareholders approved a $2.6 billion acquisition of the flailing SolarCity that was, coincidentally or not, founded by his cousins. But the plaintiffs, who included several pension funds that own Tesla stock, asserted that Musk’s involvement in the deal, his suggestions during the negotiations and the intertwining of Tesla and SolarCity investors and board members led to pressure on parties to sign off on the deal that ultimately turned out to be a lemon.

In his 132-page ruling, Slights disagreed and said he found the acquisition process to be fair, despite it being “far from perfect” and with Musk “more involved in the process than a conflicted fiduciary should be.” The judge, who plans to retire by the end of June, opined that the plaintiffs sought to use the case to probe bigger questions in Delaware’s vaunted corporate legal framework, calling them “carnival barkers” seeking to distract.

“To be sure, in answer to the barker’s call, it is tempting to venture into each tent and confront the legal enigmas that await there. Given the clarity provided by compelling trial evidence, however, there is no need to take on the challenge of discerning the appropriate standard of review by which to decide the plaintiffs’ claims. Even assuming (without deciding) that Elon was Tesla’s controlling stockholder, the Tesla Board was conflicted, and the vote of the majority Tesla’s minority stockholders approving the Acquisition did not trigger business judgment review, such that entire fairness is the standard of review, the persuasive evidence reveals that the Acquisition was entirely fair,” he wrote in what will be one of his last major opinions on the court after 18 years of service.

In cutting through the noise, discerning the facts, and hewing closely to the court’s established principles, Slights upheld the reputation of Delaware’s court system that has been home to most major corporate law for decades.

In many ways, it’s the exact opposite of what we’ve come to know and see about the case’s winning party.