Today, Tesla (TSLA) announced that it submitted an offer to acquire SolarCity (SCTY), the leading solar installer in the US. Elon Musk is the largest individual shareholder of both companies. Due to his obvious interest in the deal, which is already being called a bailout by some shareholders, Musk decided to recuse himself from the vote at both companies and leave it to Tesla and SolarCity shareholders to decide on the possible consolidation of ‘Musk Industries’.
The deal, which is estimated at about $3 billion, would see Tesla absorb SolarCity in an all stock offer.
SolarCity shareholders would receive TSLA shares at an exchange ratio of 0.122x to 0.131x:
“Subject to completing due diligence, we propose an exchange ratio of 0.122x to 0.131x shares of Tesla 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 approximately 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 Tesla shares.”
Following the news, Tesla’s stock fell ~12% in aftermarket trading, while SolarCity gained ~16%.
Musk owns about 21% of Tesla and 22% of SolarCity – by recusing himself from the vote, it will make the outcome very difficult to predict.
For SCTY shareholders, it represents a significant gain on the current closing price of $21.19 per share, but at ~$27, it is still far from the stock’s 52-week high of $61.72 per share.
For TSLA shareholders, owning shares of the automaker will be attached to owning shares of the solar installer. The businesses are fairly different and SolarCity, like Tesla, has been losing a lot of money lately and the fear of potentially affecting the automaker’s business could be a factor in the decision.
Tesla’s CEO described the acquisition as a ‘no-brainer’ and a way to integrate both companies’ offering in the clean tech sector:
We would be the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers. This would start with the car that you drive and the energy that you use to charge it, and would extend to how everything else in your home or business is powered. With your Model S, Model X, or Model 3, your solar panel system, and your Powerwall all in place, you would be able to deploy and consume energy in the most efficient and sustainable way possible, lowering your costs and minimizing your dependence on fossil fuels and the grid.
The news dropped just hours ago, but it could be interesting to already test the waters and see how shareholders of both companies view the deal at this stage.
Please vote below if you are a shareholder of one or both companies: