TSLA update, with an AGM

Welcome to shareholder Primacy from free float media podcast, about activist investing Securities Law, and all the ways, the financial and legal world's intersect and collider in real life. And and I are here and lived in a lot of professor at the University of Colorado, I could say that. Now who teaches in research and security is in business law, she holds up the legal end of this podcast and that's Mike Levine an activist investor who lives and works in Chicago. He covers the financial side of our podcast. Yes. So let's let's plunge right into our favorite case study which would be tested. Of course, it's been a little bit since we've talked about it. Yeah. Hot mess so good. Corporate governance, hot mess. I hadn't thought about it that way which is become our favorite kind of punching bag for corporate governance problems. And there's some this week, some some just happened so we can talk about that news and review what happened there. Before we get into that. Let's talk about our mailbag and if you want to mention that. Absolutely. So we do. Email address. We mentioned this a lot shareholder Primacy at freeflow.com LLC. We get, we read the emails. We get through them slowly but gradually getting through the Sofia. So if there's something that you would like us to talk about or just a simple question that you'd like us to answer, you can email us at shareholder one word at freefloat. One word dot LLC, Perfect. All right, let's let's get to Tesla. And I always there's some trepidation and then always some eagerness for at least on my end about. Yeah, so Tesla's having some fun with its annual meeting right AGM? And you, you know, we get, let's talk about that first. Second, I, I've tried to change the nomenclature, make it annual shareholder meeting AGM, is I believe that's a European phrase and you will General me general meeting AGM and everybody here uses it. So we'll call the AGM rather than the ASM. Anyway, there ASM, or AGM was announced last week to be scheduled for November 6th of this year. um, And so they basically just put out an 8K and said annual meeting is coming up. You know, they didn't put any kind of proxy statement yet, of course not. They just sort of said, here's the date and that came on the heels of a couple of little developments first, and most importantly, a bunch of big Pension funds. Like, you know, State Pension funds wrote, wrote them a letter saying. You really haven't scheduled it yet and we'll talk about that timing and a little bit but we really need you schedule one. There's all and they kind of reiterated all the standard bill of particulars and complaints about corporate governance and the Board needs to be responsive stuff. We've talked about endlessly anyway, so they wrote this big letter. And then New York Times, pay go ahead. Yeah, no. Yeah. Maybe you were saying the New York has picked up. Because yeah. I mean like just as a basic matter. States corporate law requires an annual meeting to do some, gotta have these things right to elect directors. You might have not Tesla's a classified board, so not all the directors are up for election every year, but some are and so you're supposed to have an annual meeting, right? And they and they hadn't which again we'll talk about that in a minute. And so the New York Times was their headline, was it will Tesla brake of a law. And what a thing to wonder about Tesla. Violating some sort of corporate corporate governance, corporate law statute probably in Texas at this point or SEC rule or something like that. And we'll talk about that in a minute. So in response and we can talk about the nature that response the second. It said, it would convene the AGM. It did not set a record date yet. So people you want to invest in Tesla and vote at the AGM. You say, I got a chance so you could, you could do that date record dates, though. I think they could they could come out and say actually the record date was yesterday and so you can't. Yeah. I mean, there's some rules about how far in advance of the meeting has to be though. Alright. Alright. Alright, so I suppose, if they wanted to, they could set a record date for like this past April. And and then it's gonna have to comply with something about their often rules about whether or not the record day can be too far out from the right? Yes. All right. But anyway, so November 6th got us thinking. Well, it got me thinking and US thinking about sort of the history of Tesla agms and so forth. And we'll talk about some of the implications and why? November and why not December or October or some other date in a little while, but just to kind of look at Tesla's history, this should surprise. Nobody Until? 20 basically 19 like any kind of normal company with like a fiscal year and in of December 31st their annual meetings were always in like May or really June and just, you know, for years, you know, tests have been a public company for at least 10 years before that. So they always had Junior annual meetings and then they in 2020, it was July and then in 2021, they moved to talk to her moving around, October 2022, was in August and then and then there were a couple interesting kind of situations so in in 2023 They made it as the earliest it's ever been May 16th 2023 and they did something very sneaky that year. And and some folks might remember that is that they had announced the date and the wreck. I don't remember the record day, but the answer to date for the AGM in like, a tiny little corner of a 10-q for the third quarter of 2022. Said, here's our date. Nobody saw it. Okay, so nobody figured it out until like the deadlines for submitting 1488. Precatory proposals and director nominations had long passed, right? So they hate when the date, when the shower meeting was going to be so that shareholders couldn't put stuff on it, right? They do exactly hide it, but they certainly did make it obvious. That's okay. So, you know, in 2021, they had gotten eight precatory proposals and 2022 or 2022, they had eight of them, 20 251, they had five of them. So, for 2023, they had a grand total of one proposal. So somehow that was proposal anti proposal years, they didn't want to proposals for 2023. Um, so that succeeded and everyone, I remember everyone in the SDA Community was complaining and scrambling around and thinking of suing them and you can't, I mean this is it was done. So 2024 last year, of course, was a really big meeting because they had a couple of items to vote on that was of interest to them, rather than to shareholders which, of course, was the vote shareholder, vote to move, their corporate Domo South to Texas and also the vote that crazy vote to ratify the equity. Grant going back to 2018. Yeah. Which which yeah, McCormick ultimately said that, right? Yeah, not gonna work, but right and well, I will actually be touching that a little later but importantly, why June rather than like May or something. Again, I kind of guessed at the time. They were on a bit of a dad, a bit of a On the one hand, they wanted to kind of schedule it you know pretty fast. I could get this out of the way. On the other hand, those were going to be two significant matters that were, they had a really turn off the vote if you remember musk was like, giving out company, you know, factory tours was really good. It was like a raffle for a tour of the family. Yeah, right, exactly. So because the voting standards for those two work, someone hire Van earlier kind of votes. So I was guessing at least myself. I was guessing that they gave himself another month. To do that. But but, but they scheduled to just within the 13th deadline which we're going to talk about in a second to have the meeting. So they didn't need to like, you know, reopen notice periods and so forth. So that that kind of what happened, that's what happened 2324. So, the idea the 2025 meeting not happening and then moving out to November, again, just based on the history was kind of predictable, but then, we can sort of dig into the. Why? Why? November. But we'll do that in a second. Let's, yes. So they had shareholders. That were saying, where the hell is this meeting? Yes, correct. And and, and, and the theme of the, at least the New York Times headline and so forth, was you needed to schedule it? And you're about to pass the deadline and so that gets to this interesting little artifact. I think this is common in Most states, require a public company to have a meeting within 13 months of the last One, I know that's the case in Delaware. Right. And I and that is also the case. And apparently, I think it is, also the case. Yeah, it's all have to become Detected corporate law, right? Exactly, right? So section, I looked it up section 21.351 of the Texas Corporation. I can't remember the full name of it requires a public company to convene an AGM and 13 months and I guess it's section 211 or dgcl, the Delaware Delaware, corporate law, also is the same thing. And so, but for them to kind of break the law. I mean, the, there were some some chatter on, you know, socials Among Us. Governance junkies about, oh, it's gonna happen to them. Well, the panel thing for failing to schedule a AGM, is you got to schedule it? There's no fines. There's no, no one's going to prison for this. You just they're gonna compile it. And so, but importantly nobody in any state Secretary of State's office in Delaware or for sure, Texas is sitting around waiting for these deadlines to pass. It's not like you know, your car is kind of parked in their and once that once the timing on your meter passes, there's some some parking enforcement person kind of jumps out and write to the ticket. No one's waiting to kind of haul. You know to compel Tesla to have the meeting a shareholders, got to demand. It's like fiduciary obligations. It's not enforced by the state, it's shareable very good. Yeah, it's exactly the point so I we were kind of guessing that in particular, the signatories on those the latter, which was in pretty, you know, the Illinois State Treasurer there was some pretty Interested and potentially litigious. Part signatory. To that letter. So if Tessa may have been thinking about this for a while, but once that letter came out, I'm guessing they had to say, okay. You either we do this or they're going to force us to do this so they finally Came out with a date. Right? So but in quite a bit later then, right and but in terms in turn, let's talk about that for a second in terms of the scheduled You know, if if the state treasurer would an Illinois State Treasurer, Michael Freer who's you know, a guy, we know here a word to say, okay, no crickets from Tesla. About this meeting, I'm gonna sue him and they go to Texas court and Texas. Are, you're right? I mean, there's very little defense. I don't think if you haven't done it, they're gonna and I mean, the facts are, I haven't done it. It's 13 months, you gotta do it, right? Yeah. I mean, it's fine. I mean, I don't know. Like, it seems pretty obvious to me, you've got a hold your shareholder meeting because shows have a right to vote on directly, right? But in terms of the actual scheduling My sense is and I've been involved. I'm actually involved now in an activist situation where we are compelling a portfolio company and holding annual meeting. It's much smaller than that Tesla. And the mechanics are. You know, they don't there's sort of a reasonable Miss test, I guess where they have to where they say okay you just need to hold it within like a reasonable period of time. Okay. You know you like drop everything and holding right? Yeah right. You got a print approxi you've got to put items on, right. So like in this one other case I'm working on, we're it's been a while. It's been like almost two years since this company has had an annual meeting, so we're and we know they could. So we're basically prepared to tell him. Okay. You got to do this like within 45 days. Okay, that's kind of stretching it and no one's going to tell us that. But on the other hand, if Tesla were to go to some magistrate in Texas and say, okay we're working on it, you know you know it's in process. We got all these things. We got to kind of Put together for the meeting. Can we have like four months? It would imagine that magistrate would say. Okay cool. I mean, as long as the whole point of being in Texas, was they expected a very friendly. Yeah. And so they're not gonna give him a year, they're not going to give him like, you know, tons of time. But, you know, so my my estimate was that, you know, November was kind of the outer bounds of what they would be able to get from a friendly judge with out there. You know, getting into hot water with them. And I know if how that sounds to you, that's that's probably that probably, I would not have a better sense than I do about like, what a judge is like they do in this situation. But yeah, I guess, I mean, you know, I can't, I've never seen anything you put as about as late as they could possibly go, right like that. Actually in trouble with the court. Yeah, yes. Right. And again, you know, if some shareholder were to come in now and say, okay, you know, we need it sooner than November. There's we have Preparatory proposals, we just and vote on that, judge and taxes. They'd say, Okay, Tesla's, Texas Tesla's doing it. I don't know what you people want. And so they they'd get it for November for November 6th. So, you know, the deadlines are on our research. So any, anybody any followers here that already submitted your predatory proposals for Tesla or your director nominations. I got to do it all over again. It's Amy. Go change the dates resubmit the deadline now is July 31st. So anybody who hasn't and anybody who hasn't got about you got about two and a half weeks to write them up and submit them. The window opened for director, nominations and non 1488. So that's July 9th to August 8th. So you got another couple weeks after that so you can do it. If you on the ladder, if you want to elect or nominate directors, you need to be hold your shares in registered name. So you got a registered even if time to do that. So there. So Tesla did open themselves up to more of this. I'm not sure to test the really cares but they they're still, there's still time for that. oh, now that was stage. There's some really interesting questions about, you know what, what can shareholders look forward to voting on and why wait till November. Why the delay is is really the critical question, right? Why don't we? What do you say? We take a quick break and then cover all that stuff. Okay, in a moment. Shareholder Primacy is brought to you by free flow analytics.com. The only free database of corporate directors, their influence and their performance. If you own a Stocker, retirement plan go to free flow, analytics.com and look up which of your elected directors are performing well and which aren't use your vote in the alternative democracy and get your data at free flow. Analytics.com. Now, back to the show, welcome back to shareholder Primacy. I'm Ann Lipton here with Michael Levin. We've been talking about Tesla and how it finally got around to schedule. Yes. And you will generally meeting and the big question is, why why delay it until November 6th. I mean, you know, it's been more than a year. Why not schedule it for July or September or October? It's right. Seems like they want to give themselves time for for something, so something that they're going to have to put on the proxies, so, right. And they're going to try to they're they're going to want to, you know, get all their ducks in a row to, you know, on some interest, possibly some interesting matters, they're going to want some time to expose that to shareholders and probably get their support for various things and then there's just the routine process with the company, as big as complicated as Tesla to try to just line it all up. So so we thought of a couple of things that were kind of pending there. The one just was kind of Um, disclosed in the past several days which was potentially this investment in xai. Now, just as a quick, reminder xai of course, is the artificial intelligence business that musk owns and is now the owner of the X, the former Twitter business Couple weeks, two, three weeks ago, they announced a new round. Yeah. And it's their day around or the afferent or whatever, round of investment with their racing 5 million, five billion dollars in the in the arms race to bring money in so they can compete with open Ai and anthropic and everybody else. And there was some rumor. So, Tesla hasn't really made any kind of an announcement though. Musk has been tweeting about this, so that's semi-official. I guess. I don't know who's been monitoring his tweets lately but yes, I don't think I don't think there's anybody. And so potentially 2 billion dollars out of that. 5 billion dollar round was going to come from. Tesla know Tesla is sitting on. I just wow you. Yeah, but early right maybe SpaceX will put two billion in but potentially The problem is that Tesla is sitting on this enormous mountain of cash. I don't know what SpaceX is in public. We don't see spacex's cash situation, we don't know what kind of cash and you know, 2 billion is probably not much to either but he's SpaceX as a cache, as a repository before he used it to buy Twitter. I think he actually yeah, he's generating cash there. Anyway so where it comes from is TBD again. There's been different accounts about whether and maybe both maybe both Tesla and, you know, Tesla's done this stuff before. Yeah. So I mean there's this possibility that he, you know, put out. Out, I guess on Twitter as you say that in it, you know, in addition to the SpaceX investment, which was reported that he wants to have Tesla have actually invest cash in xai and by piece of xai, right? And his and his well, go ahead, his, you know, his his tweet was yeah. Okay. You know, someone tweeted at him. Oh, you're gonna invest two billion. He says, yes, but it's subject to shareholder approval. That was the right from yesterday. Yes. This is the Tweety just put out that he would have a Cheryl vote on it. So the first thing I have to just observe about this is he is being sued in Delaware. It's one, it's the case that was filed. It's been Consolidated. They were cases, they were all Consolidated just before Tesla, reincorporated, in a tactics saying that x-ray is a Tesla opportunity that he essentially stole, right? And asset of Tesla to create xai in the first place that this should have been all part of Tesla to begin with and that's a breach of fiduciary duty and shareholder, currently suing about that. And now he's saying that Tesla can have xai back but if it pays up so it's like it feels like a little extortionate but whatever happens with the Delaware case. But so that's pending before Chancellor McCormick in Delaware but leaving aside that there's this interesting little bit to his tweet. If you take the tweets seriously, which is that not only is he planning on having proposing? Tesla, invest in AI, but he's proposing to have a shareholder vote on it. Now that part is interesting because it raises the question. Well, why have a shareholder vote on it? Yes. Now, because this is and now the answer, were this still a Delaware company would be because it's a conflicted transaction. I mean, normally if a company decides to make an investment in other company, we don't put that to a shareholder vote. They just, that's a bright decision, right? There's no, there's no, no vote needed to cleanse it or whatever they can, that's what the board is for. They put cash into things but we would, but we would consider this a conflict of transaction because it's musk on the board and investing in one of his companies. And as we've said, many times if we're thinking about Delaware law that if a shareholder sues over a conflicted transaction, if there's a shareholder lawsuit then it's subject to higher scrutiny by a court. It doesn't get business. Judgment defense conflict. Transactions are reviewed to see if they're entirely fair to the company, right? But a company like Tesla can restore business judgement review if they insert an independent decision maker into the process, someone who was in conflicted. Like Like shareholders. So a shareholder vote to cleanse the transaction but here's the thing. Tesla is not in Delaware anymore. That's right. A lot Tesla's. Now, and remember in and out, in Texas actually has a sort of similar rule to Delaware's conflict, transactions, get entire fairness review, and less, there's an independent decision maker. But Texas in its effort to lure more corporations recently, added a bit to its corporate code. That says, if you are a public company, you are permitted to adopt a bylaw. That says, no one can bring a derivative lawsuit unless they hold 3% of the shares and Tesla immediately took advantage of this. Oh, so they met you, right. I remember, they were meant to their biological to conform to this and thank you for a conflict transaction. You have to have 30, like, roughly 30 billion dollars worth of Tesla shares. Nobody has that certainly no one is going to bring a lawsuit, right? Well, I think there's I think there's one. There may be one shareholder left. Oh, is there who are there? There's one into. I can't remember the guys name. There's one in you. Yes. Alright. It's alright. So so the thing is that they don't need to have a shareholder vote then to cleanse this deal. They don't need to do anything to cleanse it because there's no possibility of a shareholder lawsuit. So if he is planning on having a shareholder vote on this, that I mean that's voluntary that's like, you know, for the Optics. But it's not, it's not like a legal, it's not going to be a legal requirement. I could be a defense defense against the conflict that you can have as many Uncle cleansed conflicts as they want. Now, they're simply not going to be an issue because nobody who has 30 billion dollars is going to sue the company except apparently this one guy. But when you just talk to him, I don't know the guy, right? So that's kind of a little bit of a puzzle. So either either, and you know, I always think that when, when we see tweets from CEO musk, you know, nothing's an accident. Well. So either there's something going on here that hasn't been disclosed or whatever. Maybe this was an accident maybe he just sort of said he was trying a little belt and suspenders it or something. Just really, I mean, he's not really running it by lawyers about what's necessary, and he really does prefer the Optics of I'd have the shareholders. Oh, sure. Okay, that shows are gonna vote. No. But the interesting thing is, what I mean, you know, once again, we have to fold it back to, he is currently being sued in the theory that he stole xai. I mean, that's really the idea here that the xai was a Tesla opportunity and he breached his Sherry duties by taking it for himself and developing in a separate company. So it's all very all right. So beyond that one, there's also an expectation that They're is potentially going to be another Vote or a shareholder vote on a new. Equity Grant. Yeah. To, so, it would be presumably to replace the one that is pending to take the tornado one. But let's, let's talk about that. Yes, I think that's it. I think that's what the delay is. I think it's over figuring out what to pay him because it has the problem is that it both is and isn't independent of the tornadic Grant. So in This grant in 2018. Which ultimately would have been 56 billion dollars with stocks forth more. Now if the grant goes through, but that was only supposed to pay him for like, some period of years until he met these Milestones. He has been working with a comp package since then. Now, we know the Delaware struck that package but whether it the Delaware, Court, struck that package and that issue was on appeal. The Delaware Supreme Court will or will not overturn Chancellor McCormick and will or will not restore this original Grant but what? No matter. What compensation? With Jonah go forward basis, right? So the board has to come up with a new compensation package on a go forward basis, but they have to do that without knowing what the Delaware Supreme Court's going to do about the old compensation package. And this is presumably relevant, all the briefings in on that Delaware, Supreme Court case, but they haven't scheduled even oral argument. I mean there's no chance. That it will be decided. This is yeah there we are not Tesla shareholders of which I am one will not know at when I when I go virtually to the November 6th AGM. We will not. There's no way we're going to know the fate of the tornado. Call it the tornado pack. Yeah. But maybe they've held oral argument and there were hints at the oral argument, but I'm sure. Yeah, we could kind of get but not really, you know, so this board, I mean, I think it's actually really complicated for this board both like legitimately, and also part of the issue with the board power relative to Elon Musk. Like, on the one hand, there is a question of whether he's going to get that money back and that matters. I mean, if I were musk, I mean, a thing must could do quite legitimately is say something, like, if I don't get that restored, then as a condition of my continuing to work at the company, I want something similar, just awarded me like a bonus for staying, give that I didn't get my old money. Now, that's difficult for Tesla to do financially. Like because we've talked about this before. Oh yeah, right. It's gonna is gonna be is gonna kill him. Yeah, I mean, Tesla deciding financially to award him that much stock. Just free and clear. Now is like the signing bonus for his going forward. They can do it. Legally. But it's a huge accounting hit, it's a huge toxic, I mean, it's terrible for them, but they have to figure out whether they need to somehow compensate him for that. Loss for his going forward. It's not a question of her story and it would be like, Elon as a condition of working at the company. We are going to restore to you. That some degree of the pay package that was struck. Except, they don't know whether they need to write, but the other issue is, how do you design? Like, what are the goals for this compensation package? Going forward? He's right. I mean, like, what are they gonna ask? I mean on the one there in no way gonna ask for stock price increases similar to what the old one was. The old one was he had to like multiply it like by 12 times or something, they're not gonna ask for a 12-fold, increase in Tesla's market cap. So, but at the same time, we know what this board wants, even if they can't demand it right. What would you want? Which is Day out of politics, stop it with this creative party, right? Focus on Tesla, not on boring company and rolling and all that, you know. Exactly. And the thing is that for me like leaving aside the whole issue of what you do about not knowing whether the old PayPal package is going to be restored. I think I view. Whatever compensation package, they come up with going forward as like the ultimate test of whether this board has any control over at Elon Musk at all. Like are they going to be a meaningful constraint? Like you get paid, but you have to actually do something that you might not, otherwise do, which is to say Stop it with the politics and all of this. So let's bring this back to the November AGM. Whatever that board, what? However, the board squares that Circle threads, that needle figures out, you know, what kind of PayPal package makes sense. For. this unique individual, this unique executive They're they're undoubtedly going to want shareholders to. They have to get it but here's the thing is the why they have to get it. Because we just said, a conflict. Transaction would need to be cleansed if they fear to shareholder lawsuit. Now this is a conflict transaction muscles on the board. His brother is on the board if they're awarding him. Pay that is a conflict transaction. Even even in Texas even in Texas. It's a conflict transaction and it needs independent approval. Now we saw the last time it was invalidated in Delaware and part of the reason for that was the shareholder vote was deemed to be not fully informed so it wasn't able to. So they were born right, blah blah but As we just said, Tesla does not need to fear a shareholder. Vote, a shareholder lawsuit because They functionally insulated themselves from Los, it's over conflicts. But The NASDAQ has listing standards and the NASDAQ listing standards say that if you award a new Equity comp package to someone that needs shareholder approval, so they're going to need they lead. So they can't just, you know, say well we're not going to get sued anyway. They actually do need shareholder approval for the comp package. I was okay, go ahead. Finish, I have a comment. Oh no. I but the interesting thing that was the NASDAQ standards different from what it be for cleansing though. Because for cleansing, it's actually technically disinterested shareholder approval so you would ignore musk's so his 13th. I mean, the inside. Yes, so must in his brother gets a vote now, right, yeah, right. Yes, which means there's no question. It's gonna be approved by Cher holders but they still do need reality of doing it, but they do have them from and presumably they don't want the embarrassment of like a bare majority that only got there because Elon Musk voted in the pressure. The boards on these days. Yeah. And they are under some pressure so I had this I was talking to someone about this that that I was wondering. Okay, maybe. Maybe he wants to be delisted from the NASDAQ because now he because, you know, once us steel got they deal with you and still closed. So there's a certain, there's a certain nicey ticker that's available now. You know the US steel for more over centuries. Yeah. You think that he wants to get delisted so he Sure, I don't know, I don't know if you switch to. I have no idea what the mechanics are, but if it's free, I wonder if you could just go ask for it free and, you know, he would love that but but I think to Put a fine. Put a point on it. Is that Trying to trying to design and then get the support and so forth for this for this and to try to overcome these hurdles and getting a compact package together for the guy. Could could they could be working until November 5th. Yeah, no, I think that's about. About figuring it out. And Paying over their heads. What is the Delaware Supreme Court going to do? Is it going to a but aside? From creative. Cheryl or approval for it, and that good take, that's not happening in August. And take until November so that helps explain it. Yeah, so wow. Um All right, so we can expect to vote conceivably in November on a bunch of directors on who the auditor is going to be. Whether we like pay, I know, I'm voting in all that stuff and potentially on a proving an investment and xai. They're not going to cause special meeting for that. And then and then maybe a comp package. Oh, it's gonna be fun. Just like 20, 20 24, very exciting. Oh, I am really curious to see what the board comes up with. Yes. Well, I me too. All right. Let's um, why don't we why don't we close this up here, right? Is that okay? Can we do? Okay. All right, let's wrap up its talk. We will have come back to test like again soon, but for now we know when the meeting is and what maybe we'll be voting on? So well we'll talk. Then this is shareholder Primacy hosted by Anne lifting and me Mike Levin. I'm an independent activist investor and advisor to investors about their activist situations and is the incoming professor of Law and Lawrence W demuth chair of Business Law at the University of Colorado law school. I love saying Are you can find me Mike at the activist investor.com and Anne at new website waweb one word Ellie w w e, wa web colorado.edu where her new professor Pages. Our podcast is produced and distributed by free flow media. Thanks for listening. We'll talk again soon.