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Tesla has asked its shareholders to approve moving its state of incorporation from Delaware to Texas, fulfilling chief executive Elon Musk’s promise in February after a Delaware court voided his $56bn pay package.
Robyn Denholm, chair of Tesla’s board, wrote to shareholders on Wednesday asking them to approve the move to Texas and to ratify Musk’s pay package, which they previously approved at a meeting in 2018.
If successful, the decision will mean Musk collects shares worth $47.8bn at today’s share price.
The votes will take place at the company’s annual meeting on June 13.
“We do not agree with what the Delaware Court decided, and we do not think that what the Delaware Court said is how corporate law should or does work,” Denholm wrote to shareholders. “So we are coming to you now so you can help fix this issue.”
Shareholder backing of Musk’s pay deal will also potentially cancel a payout of $5bn in shares that would have been made to lawyers who worked on the case. Attorneys for shareholders who defeated the original pay package in the Delaware court had asked for a multibillion-dollar share award as payment.
The vote “could undermine the basis for the . . . request for an award of attorneys’ fees of approximately $5bn in Tesla stock”, the letter to shareholders added.
The vote is a chance for shareholders to re-endorse Musk’s leadership of the company, at a time when Tesla’s sales have fallen in the face of slowing demand and rising competition.
The company will report first-quarter earnings next week, with investors braced for a drop in profitability.
Four of Tesla’s top 10 institutional shareholders contacted Denholm to complain about the Delaware ruling, Tesla said in the investor letter.
After the Delaware decision in January, Musk asked users of X, his social media platform, to vote on whether Tesla should shift its domicile to Texas. After 87 per cent voted in favour, Musk said he “will move immediately to hold a shareholder vote to transfer state of incorporation to Texas”.
Wednesday’s shareholder letter sets out in granular detail how the board sought to justify the decision to shift to Texas on governance grounds, while keeping with the wishes of Musk to move.
“Notwithstanding these communications, redomestication is a board decision, not a decision for a chief executive officer,” it 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 an option to domicile Tesla outside the US, but then drew up a shortlist of 10 states, before whittling the options down to Texas and Delaware.
Studying other companies with domiciles outside Delaware, including Apple, Nike and Microsoft, the letter said it found “no convincing evidence that reincorporating in Texas would affect Tesla’s market value” and concluded that “a ‘Delaware premium’ is non-existent or unknowable”.
