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After facing a series of setbacks in the Delaware Court of Chancery, Elon Musk appears visibly fed up and is now seeking to remove Tesla from Delaware’s jurisdiction entirely.
The public vote is unequivocally in favor of Texas!
Tesla will move immediately to hold a shareholder vote to transfer state of incorporation to Texas. https://t.co/ParwqQvS3d
— Elon Musk (@elonmusk) February 1, 2024
The CEO of Tesla commissioned an online poll on the 31st of January, seeking input on the suggestion that the EV giant should adopt Texas as its state of incorporation. With 87 percent of the votes in favor, Elon Musk has announced that Tesla’s shareholders will now be called upon to approve this arduous relocation.
As we noted last week, the Delaware Court of Chancery has voided Elon Musk’s 2018 compensation plan, widely believed to be the world’s largest such executive pay package, one that had enabled generous awards based on Tesla’s market capitalization thresholds.
Tesla underwent a trial in Delaware in 2022, where some shareholders asserted that Elon Musk’s 2018 compensation plan should be voided by the court as it was a result of sham negotiations. The plaintiffs argued that Tesla’s shareholders were never informed that Elon Musk directly dictated the specific terms of the package and that the company’s directors were personally beholden to Musk.
Delaware Chancery Court Chief Judge, Kathaleen St. J. McCormick, ultimately agreed with the plaintiffs and voided Elon Musk’s $55 billion compensation plan.
Do note that Elon Musk currently owns roughly 13 percent of Tesla, corresponding to around 412 million shares. The CEO of Tesla also owned around 304 million unexercised stock options as part of his 2018 compensation plan, entitling the EV giant’s CEO to around 9 percent of Tesla’s 3.2 billion outstanding common shares. These options have now been voided by the court.
Tesla can, of course, appeal this decision or come up with a new compensation package. The latter option, however, carries the risk of prolonged negotiations. Elon Musk has demanded a 25 percent voting control over the EV giant to prevent being “overturned” on occasion, threatening to “build products outside of Tesla” should he fail to secure the requisite voting power.
Bear in mind that it was the Delaware Court of Chancery that had compelled Elon Musk to go through with his initial $44 billion purchase offer for the X social media platform.