Can Tesla investors claw back $56bn from Musk?

One scoop to start: More than 150 retired EY partners have written to the accounting firm’s leadership objecting to the radical plan to split its consulting and audit businesses, according to a three-page memo seen by the FT.

In today’s newsletter:

• Musk faces off against Tesla shareholders

• Wall Street turns on Trump

• Brookfield and the music biz

Musk takes the stand 

Elon Musk appreciated the respite from chaotically running Twitter, where of late he has been demanding employees commit to being “hardcore” or leave.

On Wednesday, the beleaguered richest man in the world was in Wilmington, Delaware, to be grilled as a witness in the Delaware Court of Chancery.

Shareholders of his electric carmaker Tesla had sued him and the company’s board of directors over a massive stock option grant that he was given in 2018, which could be worth up to $56bn. 

The shareholders claim that the board was inappropriately controlled by Musk and the options grant had eventually swelled his stake in the company to over 50 per cent — his wealth in the company eventually approached $200bn. 

The generous remuneration package, they said, cheated stockholders as Musk attempted “to fund his personal ambition to colonize Mars”, according to court papers.

“If I over-allocate time to Tesla . . . I am not sure that would serve the greater good,” Musk testified that he told board members during negotiations over the pay package.

Musk’s defence of his remuneration has been simple and consistent. He might’ve gotten rich, but Tesla shareholders got richer.

His lawyers have consistently used the same defence: “Under Musk’s leadership, Tesla’s value has increased by more than 1,200% since the Plan was implemented — from about $53 billion to over $690 billion — making Tesla the sixth most valuable company in the world,” they wrote in court briefs.

Unsurprisingly, Musk’s testimony veered to other topics. He offered his thoughts on the Securities and Exchange Commission, which has sanctioned him over his aborted attempt to take Tesla private.

“Why was there no attention given to FTX, investors lost billions, and yet the SEC continues to haunt me,” he said of the crypto exchange’s high-profile bankruptcy. “It makes no sense.”

Alas, Sam Bankman-Fried might be the one person on this planet feeling more pressure than Musk. Not that he’s showing it.

Wall Street cancels Trump?

The year is 2020. The day is November 5. Donald Trump takes to the podium at the White House and doubles down on baseless claims that Democrats were seeking to “steal” the election.

The following morning in an emergency meeting of corporate leaders, Blackstone founder Stephen Schwarzman sought to assuage his fellow executives’ worries, saying the president was within his rights to challenge election results, and predicting that the legal process would take its course.

This week the former president announced his intentions to Make America Great Again . . . again.

This time, the private equity billionaire will be supporting a different candidate: “America does better when its leaders are rooted in today and tomorrow, not today and yesterday. It is time for the Republican Party to turn to a new generation of leaders and I intend to support one of them in the presidential primaries,” Schwarzman said.

Sad!

Schwarzman was quick to align with Trump after his surprise 2016 victory, helping to convene a panel of senior business figures to offer advice on jobs and the economy, and accompanying the new president on a visit to Saudi Arabia, the first foreign trip of his term.

Their relationship sometimes paid dividends for Schwarzman’s private equity firm. In 2017, Riyadh pledged to match up to $20bn in contributions from other investors to a Blackstone fund that planned to invest in power plants, toll roads and similar assets, mostly in the US.

But it also attracted controversy. After a 2017 gathering of rightwing extremists in Charlottesville, Virginia culminated in the murder of a counter-protester, Schwarzman said he received hundreds of emails accusing him of being a Nazi.

Schwarzman’s advisory panel disbanded itself soon after Trump proclaimed there was “blame on both sides” of the Charlottesville protests. Schwarzman has said he “wasn’t outraged” by the remarks.

The Blackstone boss was not the only one to turn his back on The Donald this week.

Citadel founder Ken Griffin, who called the former president “a three-time loser”, announced he would back a potential 2024 White House run by Ron DeSantis.

There was also Rupert Murdoch’s New York Post, which dismissed Trump’s opening campaign speech with a strapline at the bottom of its front page that did not name the former Potus, referring to him merely as “Florida man”. 

Jared Kushner and Ivanka Trump “quiet quitting” his campaign, as New York Magazine puts it, had to hurt a little, too.

Perhaps it was the two impeachments, the January 6 2021 riots, or the allegations of fraud against his business. Maybe it was the disappointing performance by election deniers and other candidates handpicked by the former president in the midterms that has steered Republicans towards other options.

“Trump’s donor base is not what it was two years ago,” said GOP donor Dan Eberhart, who gave $100,000 to Trump’s re-election campaign. “The consensus seems to be ready for new blood.”

Brookfield puts $2bn in the jukebox

Wall Street has been pouring cash into music royalties at a record pace, the latest entrant to the biz being financial behemoth Brookfield Asset Management.

The investment group has acquired the copyrights to Whitney Houston’s hit songs including “How Will I Know” and “I Wanna Dance With Somebody (Who Loves Me)” as part of a multibillion-dollar push into music in partnership with publisher Primary Wave, the FT’s Anna Nicolaou revealed.

“It’s one of the larger acquisitions we have done,” said Larry Mestel, chief executive of Primary Wave, which is managing the $2bn Brookfield-funded investment vehicle.

The Canadian asset manager follows Wall Street titans including Pimco, Blackstone, and Apollo Global Management into the music industry, as song royalties have become more attractive investments in the streaming era for their ability to generate consistent, bond-like cash flows.

Song valuations have soared as a result, although prices have recently fallen. Primary Wave isn’t deterred.

“It’s like a Basquiat or a Warhol. These are very unique pieces of art that happen to generate substantial income,” said Mestel.

There have been other signs of trouble. Song-buying pioneer Merck Mercuriadis, who launched his London-listed Hipgnosis Songs Fund in 2018, has been unable to raise new cash for the listed vehicle as its share price dwindles. (The subsequent lack of dealmaking even led to a feud involving Blackstone boss Schwarzman and a Grammy-winning artist.)

Houston’s voice has stood the test of time. Brookfield’s music chops, on the other hand, have yet to be proven.

Job moves

• Nick Jones, the founder of private members’ club Soho House, has decided to step back from his role as chief executive after revealing he has been diagnosed with prostate cancer. He will remain on the board in a founder role. Andrew Carnie, previously the group’s global president, will replace him.

• Mark Levine, a senior portfolio manager at Elliott Investment Management’s London office who helped lead many of its European campaigns, is preparing to retire after 23 years at the activist investor, a person familiar with the matter told DD.

• Thierry Bolloré will step down from Jaguar Land Rover after just two years in the role and a run of losses at the Tata-owned luxury carmaker.

Smart reads 

Desperate times In a frantic effort to save his company, FTX founder Sam Bankman-Fried made eleventh-hour pleas for emergency funding from some of the world’s most powerful investors including Sequoia, Apollo, TPG, and the Saudi wealth fund. His crypto empire’s finances were deeply misleading, a Reuters investigation found.

LinkedIn overload Investment banks and private equity firms have begun targeting young recruits before they’ve even reached legal drinking age in the US, DD’s Sujeet Indap writes in the Lex Newsletter, a process that has affected some students’ mental health.

The next generation Even Rupert Murdoch has conceded to the FT that the question of who will take over his media empire makes for a “juicy story”. The FT’s Andrew Edgecliffe-Johnson reviews Paddy Manning’s book The Successor: The High-Stakes Life of Lachlan Murdoch.

News round-up

Newport Wafer Fab’s sale to Nexperia blocked by UK ministers (FT)

Sam Bankman-Fried tries to explain himself (Vox)

Dell Technologies agrees to $1bn payment over VMware shareholder suit (FT + Lex)

German regulator postpones verdict on flaws in EY’s Wirecard audits (FT)

Ex-Tesla Australia director Kurt Schlosser pleads guilty to insider trading (FT)

Elon Musk’s Twitter on ‘collision course’ with EU regulators (FT)

Crypto broker Genesis Trading halts redemptions at loan unit (FT)

Tencent to ‘distribute’ most of its $22bn Meituan stake in dividend (FT)

The Ritblat vs HMRC files (Alphaville)