SolarCity

Another interesting tidbit of information coming out of Tesla’s SEC filing for its proposed acquisition of SolarCity yesterday – following our reports about Tesla’s board first turning down the merger and Tesla planning another round of financing – now we learn that the Rive Brothers are going to forfeit over $100 million worth of stock options through the merger.
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There are few interesting tidbits of information coming out of Tesla’s SEC filing in regard to the proposed merger with SolarCity, like the fact Tesla is currently planning another round of financing, but now we also have a detailed timeline of the behind the scene work for the merger and it includes an interesting information.

CEO Elon Musk first brought up the idea of buying SolarCity to Tesla’s board 6 months ago (Feb 2016), but the board turned him down at the time. The automaker only started considering the merger 3 months later.
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Since SolarCity’s board of directors accepted Tesla’s $2.6 billion acquisition offer earlier this month, the companies have been in a 45-day ‘go shop’ period ending on September 14, 2016. The deal is still contingent on regulatory approvals and a shareholders vote.
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When SolarCity first launched its Solar Bond Program, it was presented as an interesting way for people to invest in solar with minimum cost requirements and without having to install panels on their roof. It ended up looking more like SpaceX’s private investment platform after Elon Musk’s rocket company bought most of the bonds over the last year – about $255 million worth.

Now Elon Musk is also personally investing in the Solar Bonds, along with SolarCity co-founders Lyndon and Peter Rive, ahead of SolarCity’s merger with Tesla.
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Earlier this month, SolarCity’s board of directors accepted Tesla’s $2.6 billion acquisition offer.  The deal is still subject to SEC review, but otherwise, the agreement will be brought to a Shareholders vote at some point after September 14, 2016 and if all goes well, the merger should close during the fourth quarter.

Now SolarCity announced some restructuring ahead of the Tesla merger. The company will have layoffs and the co-founders, CEO Lyndon Rive and CTO Peter Rive, are giving up their salaries.
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Several top institutional holders increased their stake in Tesla (TSLA) over the last quarter, which is particularly significant ahead of the Tesla-SolarCity merger vote. Interestingly, one of the biggest holders of both companies, Fidelity, divested from SolarCity (SCTY) during the second quarter, but increased its stake in Tesla by 25 percent to 20.36 million shares worth $4.4 billion.
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Tesla CEO Elon Musk was on SolarCity’s conference call for its second quarter financial results today, which is unusual for the Chairman, but understandable considering the impending deal for Tesla to acquire the solar installer. During the call, Musk announced that SolarCity will unveil a “solar roof” as opposed to “solar modules on a roof”.

While Musk didn’t elaborate on the product itself, he made it clear that Tesla/SolarCity will go after the roof industry with its new products, rather than only installing solar modules on existing roofs.
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During a Monday morning Tesla Motors conference call Elon Musk, in response to several questions regarding designing a new system wide (solar, storage & car) inverter, said –

We don’t want to jump the gun on future (hardware) announcements, but we are internally betting on the merger. If it doesn’t go through, It would a bit awkward…we are betting on the merger for integrated power electronics.

This and other comments essentially answered the question we posed Saturday, ‘Will TeslaSolar continue to outsource the brain of its solar systems – the inverter – or develop in house?’ That design of this inverter occurred as part of the behind the scenes work of a merger, is testament to the importance of this piece of hardware in Musk’s vision of Tesla Energy’s future.

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Since announcing Tesla’s intentions to acquire SolarCity, CEO Elon Musk has often been talking about the importance of aesthetics in rooftop solar installations. In the original conference call discussing the merger proposal, he came back to the aesthetic of the panels a few times. He said that the new panels will enhance the aesthetic of the roof on which it is installed and therefore add to the value of a house instead of decreasing its value – again based on aesthetics.

He said that he is confident SolarCity’s new panels, built by its Silevo division, will achieve that, but he couldn’t talk about it in details since SolarCity has yet to unveil the solar panel. Now today we finally got our first glimpse at the new solar panel.
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As anticipated yesterday, Tesla announced this morning that it came to an agreement with SolarCity and both board of directors approved a deal worth $2.6 billion in Tesla stocks. Under the agreement, SolarCity has a 45-day ‘go shop’ period to request other offers and the deal is subject to SEC review, but otherwise, the agreement will be brought to a Shareholders vote after September 14, 2016.
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After just over a month of due diligence and negotiations, Tesla (TSLA) and SolarCity (SCTY) are reportedly about to announce a merger agreement, likely on Monday. Interestingly, the agreement is reportedly likely to include a ‘go-shop’ provision to allow SolarCity to request offers from other potential buyers before bringing the offer to a shareholders vote.
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Tesla had made it a goal to vertically integrate long prior to the current offer to purchase SolarCity. SolarCity took action purchasing a solar panel and solar racking company. A looming question becomes – how exactly will TeslaSolar protect itself in the solar inverter market? TeslaSolar could purchase a close technology partner like SolarEdge or design in house like it does with Tesla automobiles. With powerful options like these, arguments of value of cash, availability of in-house focus, risk of inaction/value of action and control over data are probably the driving considerations.

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It has been over a month since Tesla announced the proposed acquisition of SolarCity and the two companies have been doing their due diligence on the agreement ever since. They are now reportedly close to an agreement and could announce the “terms of a deal in the coming days”.
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Despite the strong negative media reaction to Tesla’s proposed acquisition of SolarCity and subsequent 10% stock price decrease, Elon Musk now says that he is convinced the merger will pass after talking to the companies’ major investors.
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If you are wondering how come Tesla’s stock price is performing relatively well in the past week despite all the bad publicity following a recent fatal accident while a Model S driver was using Autopilot, an NHTSA evaluation that could lead to a recall and an important delivery miss for the last quarter, Ihor Dusaniwsky, Head of Research at the financial analytics firm S3 Partners, has an interesting theory explaining the situation.
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In a new report released by SolarCity, we are seeing that solar power systems have a usable lifetime of at least 35 years – 40% longer than the market expects. The key finding of the report is that power degradation (annual efficiency loss) of solar panels supplied to SolarCity is as much as 35% lower than for a comparable industry-wide selection of non-SolarCity panels, which are typically expected to last for 25 years. SolarCity feels it is the implementation of a stringent and industry-leading “Total Quality Program” that has driven this.
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In a new note to client today, Credit Suisse downgraded SolarCity’s (SCTY) stock from ‘Outperform’ to ‘Neutral’ with a price target of $27.00 (from $38.00 previously) based on what it sees as an increased probability of the Tesla’s (TSLA) acquisition deal closing, which it estimates to be ‘grossly undervalued’.
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Following Tesla’s (TSLA) acquisition offer to SolarCity (SCTY) last week, the automaker’s stock price fell sharply, but while the market tumbled after the United Kingdom voted to leave the European Union the next day, the stocks of both companies outperform the market – indicating some resistance.

Now we learn that Wall Street is betting big against the companies as short interest is close to all time high and short sellers are out of shares to borrow.
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Last week, Elon Musk announced his plan for Tesla to acquire SolarCity and fold the solar installer’s operations into Tesla’s own business. The offer is still contingent on board approval and shareholder votes at both companies,  but Electrek has now learned that the automaker is going ahead with trademark applications to sell solar products under its ‘Tesla’ brand.
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When Tesla first announced that it submitted an acquisition offer to SolarCity‘s board of director, the company made it clear that Elon Musk and Antonio Gracias will recuse themselves from voting on the $2.8 billion merger deal since they both sit on the boards of both companies.

Now we learn that two more SolarCity board members will be recusing themselves from the vote after it was determined that they didn’t “meet the requirements for independence”.

The two SolarCity directors are JB Straubel, best known for being co-founder and CTO of Tesla, and Peter Rive, SolarCity co-founder and CTO, but also cousin to Elon Musk.
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