Tesla to vote ‘immediately’ on move to Texas as Musk’s $56bn pay deal is blocked

Tesla to vote ‘immediately’ on move to Texas as Musk’s $56bn pay deal is blocked

1 Feb    Finance News, News

Elon Musk said Tesla would move “immediately” to hold a shareholder vote to switch the electric carmaker’s state of incorporation to Texas after a court in Delaware voided his $56 billion pay package.

The billionaire said the public vote in a poll he posted on X was “unequivocally in favour of Texas!”.

In the poll he asked: “Should Tesla change its state of incorporation to Texas, home of its physical headquarters?” The final result was 1.1 million voting to leave, representing 87.1 per cent of those who did the poll.

Musk had said he was considering a move after Kathaleen McCormick, the judge sitting in Delaware’s court of chancery, called the compensation “an unfathomable sum” that was not fair to shareholders, according to a court filing.

The decision puts Musk, 52, whose wealth was said to have stood at $251 billion at the start of this year, at risk of losing his status as the world’s richest person to Bernard Arnault, the founder and chief executive of LVMH, the luxury goods group, according to calculations by Forbes.

“Should Tesla change its state of incorporation to Texas, home of its physical headquarters?” Musk wrote on Twitter/X, the social media platform he bought for $43 billion in 2022 after the decision. “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters,” he added.

The ruling over his 2018 remuneration package in effect has put a stop to the largest pay deal in corporate America and is a blow to Musk as he looks to raise billions of dollars for a new artificial intelligence company. The ruling can be tested with an appeal to the Delaware Supreme Court.

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In her judgment, McCormick characterised Musk as the “paradigmatic ‘Superstar CEO’ [who] enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan”.

In her 201-page opinion, the judge wrote: “The incredible size of the biggest compensation plan ever — an unfathomable sum — seems to have been calibrated to help Musk achieve what he believed would make ‘a good future for humanity’.”

Musk testified during the compensation hearing in November 2022 that the money would be used to finance interplanetary travel.

Directors of Tesla, the electric car company, argued during a week-long hearing that the company was paying to ensure one of the world’s most dynamic entrepreneurs continued to dedicate his attention to the business. Antonio Gracias, a Tesla director from 2007 to 2021, called the pay package “a great deal for shareholders” because he said it led to the company’s extraordinary success.

Musk will lose options over 303 million shares if the judgment is upheld, which will take his stake to 13 per cent, well below the 25 per cent voting power he had said previously that he wanted to amass in the company.

The challenge was brought by Richard Tornetta, a Tesla shareholder, in 2018. Greg Varallo, a lawyer acting for Tornetta, said in response to the ruling: “Good day for the good guys.”

The judge’s opinion directed the Tesla shareholder who challenged the pay plan to work with Musk’s legal team on an order implementing the decision.

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