SolarCity Corp (NASDAQ:SCTY) is reportedly closing in on a merger with Tesla Motors Inc (NASDAQ:TSLA). Soon after the brainchild behind the move, Elon Musk, said he was confident in the merger going through, new reports suggest that the two solar companies are actually nearing a deal.
SolarCity Corp to Merge With Tesla Soon?
A new exclusive report from Reuters suggests that SolarCity and Tesla are inching closer to a deal.
Sources close to the situation say the two sides have made considerable progress in recent days. In fact, SolarCity and Tesla could agree on new terms of a deal in the coming days. The sources did warn, though, that the negotiations could be tossed aside.
The people behind the report, which have requested not to be named publicly, say the two firms are performing due diligence on one another. It remains unknown if SolarCity will have a go-shop provision in a merger agreement that would permit bids from interested prospects.
SolarCity and Tesla did not make a comment on the reports. SolarCity still has not revealed publicly what it thinks of the merger idea from Musk.
Last month, Tesla issued a $2.8 billion all-stock offer for SolarCity. Musk presented the case that merging the two firms would help create a one-stop clean energy shop. By putting the two companies together, customers can take advantage of home battery storage, solar panels and electric cars all from the same brand.
The merger did not receive positive buzz from Wall Street. Tesla shares crumbled, while SolarCity shares barely nudged. Many referred to the proposal as a disaster. Despite the negativity surrounding the deal, Musk confirmed last week that he remains confident that a merger will go through.
He told the Wall Street Journal that after speaking with mutual funds he became quite optimistic.
“The most informed investors are highly supportive of the transaction,” Musk told the newspaper. “[I have] yet to talk to an investor after I have fully explained the situation and not had them support it. Most just didn’t understand how bringing together a car and a solar company made sense from a product standpoint.”
SolarCity shares were down 0.47 percent at $27.30 on Wednesday. Tesla shares were also down 0.09 percent at $229.80.
Does Tesla Need Money for SolarCity Corp?
The intention behind the merger, according to Musk, is to integrate the two companies. If the merger were to be approved then it would form a multi-line alternative energy company.
Would this be expensive to achieve? Yes, say several analysts, and Tesla would need to find some extra money.
This isn’t a theory, either. A recent report stated that, during a media open house, Musk was talking about this exact same concern.
Speaking to an audience outside of Reno, Nevada, Musk told attendees that Tesla would need “tens of billions” of dollars over the next several years to make the merger work. The Tesla CEO noted that in order to achieve this there will need to be a “modest” capital raise.
Ultimately, if the merger is a success then there will likely be lack of short-term cash flows.