The automaker in an amended regulatory filing said that four shareholder suits have been filed over the deal, which would combine two companies with significant board and management overlap and which both count Tesla CEO Elon Musk as a major shareholder. The suits, all filed in the Court of Chancery of the State of Delaware, all allege that Tesla board members breached their fiduciary duties when considering the transaction.
The court on Sept. 16 scheduled a hearing to consolidate the actions for Oct. 18, which means the deal is unlikely to close before that date. Tesla and SolarCity have not yet scheduled shareholder votes but are expected to hold special meetings in early October, meaning the deal could be delayed for a minimum of a few weeks.
Tesla and SolarCity, mindful of the appearance of conflict, tried to mitigate risk by recusing a large number of board members from each company from deliberating on the deal and requiring approval of a majority of non-insider shareholders for the transaction to close. Tesla in the filing said it "believes that the actions are without merit."
Even without the suits questions remain about whether Tesla will be able to complete the transaction, with SolarCity shares on Monday morning trading at a significant 24% discount to Tesla's all-stock offer price.
With SolarCity bleeding cash and Tesla facing billions in capital expenditures in the quarters to come as it tries to finalize and bring to market its Model 3 sedan while also building out its retail and charging station networks, some Tesla holders have argued the company would be better off without the distraction and cash drain of a business with few links to its automotive core.
But for SolarCity a deal failure would be a significant negative. The company is saddled with $2.8 billion in debt and has provided hints in recent quarters that debt markets are growing nervous about further lending to the company. The solar panel installation firm last month leaned on Musk and other insiders to buy $100 million worth of a $124 million bond offering despite the debt paying a far-above market rate of 6.5%, a potential sign of tepid interest.
SolarCity can ill afford a protracted delay in closing the deal. The August merger agreement encourages SolarCity to delay paying its short-term accounts payable until after the deal closes, an effort to preserve cash until SolarCity is part of Tesla's larger balance sheet. A forced delay could require SolarCity to pay its bills prior to closing, potentially disrupting the company's cash flow projections.