Class action seeks to block Tesla purchase

Shareholders of energy-storage company Maxwell Technologies filed a proposed class action to stop the company's $218 million sale to Tesla Inc.

The Maxwell shareholders allege the company's directors undervalued Maxwell in the sale, significantly impacting the shareholders' financial investment in the company, according to the complaint filed Tuesday. The suit also argues Maxwell's sale would not have happened without Tesla's direct assistance in the directors' "breaches of fiduciary duty."

Tesla "threatened to end its customer relationship with Maxwell should the company not accept its offer to purchase it," the complaint states, describing a rushed sales process that only enacted proper sales protocol after Tesla made the threat and after negotiations started.

"Such a sales process, or lack thereof, clearly indicates that the only end-goal acceptable to the defendants was an acquisition of Maxwell by Tesla," states the complaint, which alleges the Maxwell board of directors and other senior decisionmakers stood to gain "unique benefits" from the sale. Leggett v. Maxwell, 19-CV00377 (S.D. Cal., filed Feb. 26, 2019).

Tesla declined to comment Wednesday.

In Tesla's registration statement to the U.S. Securities and Exchange Commission, the Maxwell board of directors states the terms of the merger "are fair to, and in the best interests of, Maxwell and its stockholders."

Representatives from Maxwell did not respond to requests for an interview Wednesday, but in a Feb. 4 news release announcing the sale, Maxwell President and CEO Franz Fink said: "We believe this transaction is in the best interests of Maxwell stockholders and offers investors the opportunity to participate in Tesla's mission of accelerating the advent of sustainable transport and energy."

It's not unusual for merger and acquisition deals to garner lawsuits from shareholders, according to James Donovan, a mergers and acquisitions attorney with The Donovan Offices, which is not involved in the matter.

A 2017 study from Cornerstone Research showed 73 percent of these deals resulted in a lawsuit when the deal was valued at over $100 million.

"These types of claims tend to be a 'repricing' of the transaction," Donovan said, adding that many of the cases are settled.

Attorneys representing the plaintiffs also declined to comment.