Tesla Motors Inc made an offer to acquire SolarCity Corp in a deal valued a in a stock deal worth as much as $2.8 billion. Tesla believes that a combination would provide significant benefits to shareholders, customers and employees of both companies. The acquisition would transform Tesla into “the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers,” from solar panels and home storage batteries to electric vehicles, Musk said.
Musk is the largest shareholder in both companies, owning 19% of Tesla and 22% of SolarCity. He is also chairman of SolarCity. In a letter to SolarCity CEO Lyndon Rive and the company’s board of directors, the electric car marker said that proposes acquiring all of the outstanding shares of common stock of SolarCity in exchange for the electric car marker’s common shares.
Tesla Motors Inc is proposing an exchange ratio of 0.122x to 0.131x shares of its common stock for each share of SolarCity common stock. This proposal represents a value of $26.50 to $28.50 per share, or a premium of about 21% to 30% over the closing price of SolarCity’s shares, based on today’s closing price of SolarCity’s shares and the 5-day volume weighted average price of TSLA shares.
“We believe that our proposal offers fair and compelling value for SolarCity and its stockholders, while also giving SolarCity’s stockholders the opportunity to receive TSLA common stock at a premium exchange ratio and the opportunity to participate in the success of the combined company through their ongoing ownership of TSLA stock,” the electric car said.
Musk and SolarCity CEO Lyndon Rive would recuse themselves from voting on the deal, which is subject to the satisfactory completion of due diligence.
“We look forward to discussing a potential transaction with you, and hope to expeditiously enter into a definitive agreement,” the electric car making giant said in a statement.
Musk: No Brainer Deal
Tesla doesn’t anticipate significant regulatory or other obstacles in completing a beneficial transaction promptly.
In a call to reporters, Musk described the deal as a “no brainer,” Reuters reported. He said that the company could sell customers an electric car, a home battery and a solar system all at once.
“Instead of making three trips to a house to put in a car charger and solar panels and battery pack, you can integrate that into a single visit,” Musk told reporters. “It’s an obvious thing to do.”
It seems that Tesla Motors Inc’s shareholders aren’t happy with this proposal. Shares of the company’s stock dropped over 13% in extended trading, resulting in a loss in value of about $4.3 billion. On the other hand, shares of SolarCity rose about 18% to $25.02. The solar company has about $6.24 billion in liabilities, including debt, and its shares are down by 58% in the year to date.
“Ideally you want to see Tesla focus on Tesla – building Teslas and expanding the cars,” said Ivan Feinseth, an analyst at Tigress Financial Partners. “Maybe the feeling is that this takes away focus, and it could financially strain Tesla, which is going to continually need a lot of cash.”