Tesla tried and failed to buy a lithium startup for $325 million

In a lengthy report published yesterday, the Desert Sun described the demise of a young lithium extraction startup and how Tesla tried and failed to buy it for $325 million in TSLA stock back in 2014. It offers an interesting look at Tesla’s acquisition process, something rare for the automaker. The company only made one acquisition: a tool and die company in Michigan.

The article is a long read, but a very interesting one if you have the time. Here’s a much shorter version if you just want the main takeaway points.

Simbol Materials was a lithium extraction startup based on the southern shore of the Salton Sea, southeast of Southern California’s Coachella Valley. Its claim to fame is to have invented an efficient method to extract and produce battery-grade lithium.

The method attracted the attention of Tesla, which is currently looking to secure a supply chain of lithium, among other minerals, for its ‘Gigafactory 1’ in Nevada. The Desert Sun obtained a letter Tesla CEO Elon Musk sent to Simbol CEO John Burba. The publication released the letter:

Dear John: I am very excited about the prospect of Tesla and Simbol coming together, and I hope that you share our view that this is a compelling opportunity to combine two innovative companies on a mission to advance clean and sustainable energy technologies worldwide. We?re very impressed with what you and your management team have created at Simbol, and we look forward to discussing how you and the Simbol management team would continue to make a real difference in the world. This letter and the Term Sheet attached to it should provide you with an outline of how we would propose to combine Tesla and Simbol. Based on our current knowledge, we are prepared to acquire all Simbol equity securities on a fully diluted basis for an aggregate purchase price of up to $325,000,000 (the ?Merger Consideration?). The Merger Consideration includes an earnout and would be paid in shares of Tesla common stock. Additional proposed terms of the Acquisition are contained in the Summary of Proposed Terms and Conditions attached as Exhibit A to this letter. Tesla is prepared to move quickly to negotiate a potential transaction. This letter is submitted by Tesla for consideration by Simbol and its Board of Directors on a con?dential basis and should be treated accordingly. As a non-binding outline of the terms of a proposal we would be willing to discuss, we do not believe that our proposal requires either of us to disclose its existence. Accordingly, except as required by law or regulatory authorities, or with the prior written consent of the other party, neither Tesla nor Simbol shall issue any statement or communication to the public or press regarding this proposal. Again, we are very excited about partnering with you and your team and look forward to your response. Sincerely, Elon Musk

A buyout offer for $325 million in Tesla stock was attached to the letter. The deal fell apart by January 2015.

The relatively small startup had demonstrated its lithium extraction technology and it was impressive enough to attract the attention of Tesla, but the company was running out of cash and had difficulties securing the ~$400 million it needed to build its plant.

Tesla’s potential backing changed everything. The company quickly leverage the offer and commissioned a valuation by Jefferies, a New York-based global investment bank, which estimated the startup to be worth $2.5 billion.

The startup used the new valuation to get a better deal from Tesla, the Desert Sun reports that they asked for $1.6 billion, which Tesla would have never been able to afford. Another source tells the story differently and says that Simbol wasn’t even able to make a counteroffer:

“The person with knowledge of the negotiations told a slightly different story, saying Musk shut down all discussions after seeing the $2.5 billion valuation from Jefferies. According to that source, Musk abruptly ended all negotiations after reviewing the valuation, never giving Simbol the chance to present a counteroffer to his proposed $325 million purchase price.”

The deal fell apart and so did Simbol Materials. It was out of cash and fired most of its employees.

The company never filed for bankruptcy, but it ceased operations.

A new company, founded in part by former Simbol executives, is now tyring to secure Simbol’s technology through a legal process. Alger Alternative Energy will again try to convert Salton Sea’s geothermal brine to lithium on a large-scale, and who knows, maybe one day they will be able to do business with Tesla.

You can read the full report from the Desert Sun here.