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Elon Musk

SolarCity, the solar power company that has received a takeover approach from Tesla Motors, sought to deal with a tortuous web of potential conflicts of interest on Monday by announcing a special committee of directors to consider the proposal.

Despite being made up of only two of SolarCity’s eight board directors, however, the committee still includes one who was also once on the board of Tesla.

The overlap highlights the difficulties the solar company faces in persuading shareholders that it will evaluate the Tesla bid approach objectively. It will also have to lay the ground for what legal experts said would be an inevitable challenge in court if a deal is ever completed.

Tesla chief executive Elon Musk is also chairman of SolarCity and owns slightly more than 20 per cent of both companies, prompting questions about potential conflicts when his takeover approach was announced last Wednesday.

Mr Musk and Antonias Gracias, an investor who also sits on both boards, said at the time that they would not vote their shares in either company in any future shareholder vote on a deal.

However, the ties between the two companies’ boards go much further, and only one of SolarCity’s eight-person board has no present or past connection to Tesla.

On Monday, the solar company set up a special committee with “exclusive authority” to weigh the company’s “long-term business plan and standalone opportunities for value creation against a broad range of strategic alternatives”. One member, venture capital investor Nancy Pfund, was a board member of Tesla before its 2010 initial public offering, while Donald Kendall, chair of the committee, has no previous ties. The committee will be advised by Skadden Arps and Lazard.

“The situation is highly unusual” given how many links there are between the two companies’ boards, said Brian Quinn, a professor at Boston College Law School. The overlaps meant that shareholder lawsuits were likely, with the onus falling on SolarCity’s board to show it acted in the best interests of shareholders, he added.

Among the directors to have recused themselves from voting on a Tesla takeover are Mr Musk’s cousins Lyndon and Peter Rive. JB Straubel, Tesla’s chief technology officer and another SolarCity director, has also been forced to count himself out.

That has left only three directors able to vote on any future offer — Mr Kendall, Ms Pfund and John Fisher, a partner at venture capital firm Draper Fisher Jurvetson, which was also an early backer of Tesla.