Tesla owes JPMorgan $ 162 million, according to the bank.
Tesla has been sued by JPMorgan, which claims it owes the bank $ 162 million under a 2014 share purchase warrants deal. The disagreement revolves around changes to the deal at the following decision by Tesla CEO Elon Musk[f]unding secure ”tweet in 2018 and the backlash that followed.
The complaint was filed Monday evening in the Southern District of New York.
According to the claim, JPMorgan bought a number of warrants from Tesla in 2014, as the company was still trying to finance the construction of the original Gigafactory, as Reuters first reported.
Stock warrants give the buyer (in this example, JPMorgan) the right to purchase shares of a company (in this case, Tesla) at a predetermined price within a specified time frame. JPMorgan bought warrants from Tesla in 2014 that were due to expire in June and July 2021.
Initially, the companies agreed to a “strike price” of $ 560.6388. Neither company owed anything to the other if the warrants expired and the Tesla share price was below the strike price. However, JPMorgan claims that if the Tesla share price was above the expiry strike price, Musk’s company was obligated to return shares equal to the difference between the two prices.
Because this was such a large and complex financial transaction, JPMorgan made sure all legal safeguards were in place. One was to protect the Tesla share price in the event of announcements of major mergers or takeovers. If something similar happened, the bank and the manufacturer could determine a new strike price for the warrants.
This brings us to the tweet. On August 7, 2018, Musk tweeted that he was “considering privatizing Tesla at $ 420. Funding assured. Later that day, Tesla’s CFO, chief communications officer, and general counsel wrote an email attributed to Musk, which was posted on the company’s blog and explained Musk’s announcement. “[i]investor support is confirmed. The only reason it’s not certain is that it depends on a shareholder vote. Tesla’s head of investor relations also told reporters there was a “firm offer.”
But, as everyone found out after the Securities and Exchange Commission sued Musk and Tesla over the announcement, none of it was true. Musk spoke briefly with the Saudi Arabia Public Investment Fund, but that was the end of it.
JPMorgan recognized the consequent volatility in Tesla’s share price and decided to change the exercise price of its warrants before the truth was revealed. He lowered the price to $ 424.66 and informed Tesla of the change. According to the lawsuit, Tesla agreed to a conference call on August 24, but canceled at the last minute.
Tesla and Musk revealed the same day that their attempt to privatize Tesla had failed.
Consequently, JPMorgan decided to modify the exercise price of the warrants again. He recalculated based on reaction to Tesla and Musk’s decision to reverse the price and offered a strike price of $ 484.35.
According to the JPMorgan lawsuit, Tesla “protested that no adjustment should be necessary at all because he had so quickly abandoned his privatization plans.” Bank. Tesla “did not provide any specific objections” to these explanations, according to the bank. Tesla then stopped communicating with JPMorgan for six months, according to JPMorgan.
In February 2019, attorneys for Tesla wrote to JPMorgan, stating that the bank’s reviews were “unreasonably swift and represented an opportunistic attempt to take advantage of changes in the volatility of Tesla’s shares.” JPMorgan responded by “rejecting all [Tesla’s] charges ”, but the two sides did not communicate for the next two years. JPMorgan adjusted the price to $ 96.87 in August 2020 to account for Tesla’s stock split, but Tesla says it never reacted.
According to the lawsuit, by the time the expiration dates arrived this year, Tesla shares had already experienced an extraordinary run and JPMorgan’s warrants were “a lot in the money.” Tesla “reiterated its objections to the adjustments” when the bank contacted them about the withdrawal. JPMorgan has settled some actions with Tesla – the bank did not say how much – but the bank alleges Tesla “refused to settle in full”, triggering an “early termination” condition.
Tesla owed JPMorgan 228,775 shares when the contract was canceled, according to JPMorgan, and those shares were worth $ 162,216,628.81 based on the Tesla share price at the time. (To make matters worse, JPMorgan had hedged its Tesla guarantee deal by keeping a short position in Tesla shares.) When Tesla failed to settle the remaining shares, the bank was forced to hedge the covered bet in buying the equivalent number of shares in the open market.)
Musk was still tweeting shortly after the complaint was filed on Monday, in a thread he started on Sunday in response to a tax tweet from Sen. Bernie Sanders (I-VT). Musk wrote: “I like to dig my grave very deep”,