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Tesla has asked its shareholders to approve moving its state of incorporation from Delaware to Texas, fulfilling a promise Chief Executive Elon Musk made in February after a Delaware court overturned his $56 billion pay package. of dollars.
Robyn Denholm, chairman of Tesla’s board of directors, wrote to shareholders on Wednesday asking them to approve the move to Texas and ratify Musk’s pay package, which they previously approved at a 2018 meeting.
If successful, the move will mean Musk will collect shares worth $47.8 billion at the current price.
Votes will take place at the company’s annual meeting on June 13.
“We disagree with the Delaware court’s decision, and we do not believe that what the Delaware court said is consistent with how corporate law should or does work,” Denholm wrote to shareholders . “So we’re coming to you now so you can help us resolve this.”
Shareholder support for Musk’s pay deal will also potentially wipe out a $5 billion stock payment that would have gone to lawyers who worked on the case. Lawyers for the shareholders who rejected the original compensation plan in Delaware court had sought a multibillion-dollar stock award as payment.
The vote “could undermine the foundations of . . . request for an award of attorneys’ fees in the amount of approximately $5 billion in Tesla stock,” the letter to shareholders added.
The vote is an opportunity for shareholders to reaffirm Musk’s leadership of the company, at a time when Tesla’s sales have fallen in the face of slowing demand and growing competition.
The company will report its first quarter results next week as investors brace for a decline in profitability.
Four of Tesla’s top 10 institutional shareholders contacted Denholm to complain about the Delaware decision, Tesla said in the investor letter.
After Delaware’s decision in January, Musk asked users of X, his social media platform, to vote on whether Tesla should move its home to Texas. After 87% voted in favor, Musk said he would “immediately hold a shareholder vote to move the state of incorporation to Texas.”
Wednesday’s letter to shareholders detailed how the board sought to justify the decision to move to Texas on governance grounds, while respecting Musk’s wish to relocate.
“Despite these communications, redomestication is a decision of the board, not a decision of the CEO,” he said.
After meeting in early February without Musk or his brother Kimbal, Tesla’s board convened a special committee to study the plans. This group briefly considered the possibility of domiciled Tesla outside the United States, but then came up with a shortlist of 10 states, before narrowing down the options to Texas and Delaware.
Studying other companies domiciled outside of Delaware, including Apple, Nike and Microsoft, the letter said it found “no convincing evidence that reincorporation in Texas would affect Tesla’s market value” and concluded that ” a “Delaware bounty” is non-existent or unknowable.” .
