Big U.S. investors strive for edge in private CEO meetings

Mon Jul 11, 2016 1:16pm EDT
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By Tim McLaughlin, Ross Kerber and Michael Flaherty

BOSTON/NEW YORK (Reuters) - Tech billionaire Elon Musk's acknowledgement that, over the years, he had "bandied about" with some of his biggest shareholders the idea of combining Tesla Motors Inc (TSLA.O: Quote) and SolarCity Corp SCTY.O is rare public recognition of the access and insights large investors get.

"Has this idea been bandied about with our larger shareholders, institutional shareholders? Yes, there have been discussions and I think some of them see it as a natural thing to do," Musk said during a June 22 conference call after announcing the $2.8 billion deal to the market.

He was responding to a JPMorgan analyst's question on whether Musk had discussed the acquisition with any investors and how they felt about it. Musk did not name the investors or give more details on the conversations.

In 2000, the U.S. Securities and Exchange Commission (SEC) formally banned company officials from selectively disclosing nonpublic, material information - such as details about profit forecasts, new products or deals – to investors.

Talking about general strategies and ideas with investors does not violate the rules, though. Moreover, a company "is not prohibited from disclosing a non-material piece of information to an analyst, even if, unbeknownst to the issuer, that piece helps the analyst complete a "mosaic" of information that, taken together, is material," according to an SEC discussion of the rules.

Big investors, through their private meetings with company bosses, get insights that can give them an advantage over smaller shareholders. That can put big fund managers in a better position to make - or save – money depending on what they glean from the meetings, and companies still would not violate the letter of the SEC rules, some securities lawyers say.

News of the Tesla deal sent SolarCity's shares soaring 25 percent in after-hours trading on June 21, and lopped more than $2.8 billion in market value off Tesla the next day. Tesla shares have since more than recovered those losses.

About two months before the announcement, Fidelity Investments portfolio manager Gavin Baker wrote in his first-quarter commentary to investors, "We foresee fruitful synergies between say, Tesla and SolarCity – or any company that can benefit from superior battery technology."   Continued...

Elon Musk, chairman of SolarCity and CEO of Tesla Motors, speaks at SolarCity's Inside Energy Summit in Manhattan, New York October 2, 2015.   REUTERS/Rashid Umar Abbasi/File Photo