SolarCity (SCTY) Agrees to Tesla Acquisition for $2.6B in Stock

Shares of SolarCity Corp. (SCTY) were trading down -1.50 or -5.62 percent to $25.20 per share in Monday’s premarket after the company filed a Form 8-K with the Securities and Exchange Commission early this morning outlining its Agreement and Plan of Merger with Tesla Motors Inc. (TSLA). SolarCity Corp. stock closed at $26.70 per share, down -0.18 or -0.67 percent in Friday’s regular trading session.


Stock Analysis

Founded in 2006, San Mateo, California based SolarCity Corp. is a domestic provider of energy services.
The company is known for designing, financing and installing solar energy and power systems. In addition to designing and marketing, the company provides solar lease and power purchase agreements, loan agreements, and zep solar mounting systems. SolarCity also produces proprietary software which includes SolarBid, a sales management platform, Energy Designer, an application used for collecting site specific design details on a tablet computer for field engineer auditors, and PowerGuide, a professional monitoring solutions software.

Founded in 2003, Palo Alto, California based Tesla Motors Inc. is a world class electric auto manufacturer that produces two fully powered electric automobiles at the company’s single plant in Freemont, California. The two cars are the Tesla Roadster and the Tesla Model S, the first fully electric sports car and luxury sedan ever produced. Tesla Motors also markets electrical components to other automakers such as Daimler and Toyota. These include electric powertrain components and lithium-ion battery packs used in electric and hybrid models.

The all-stock transaction will have SolarCity shareholders receive 0.11 shares of Tesla Motors stock for each share of SolarCity. The deal values SolarCity shares at $25.83 apiece according to the closing prices of the stocks on Friday. The total enterprise value of the transaction is approximately $2.6 billion.

The deal will require SolarCity to pay Tesla a termination fee of $78.2 million if the company decides against the merger. SolarCity has also been given a “go shop” period of 45 days, in which the company can find another suitor. If SolarCity finds a better offer within the 45 day period, the termination fee owed to Tesla would be only $26.1 million.

While the merging of the two companies fits into Elon Musk’s plans to consolidate the two companies, a number of conflicts of interest might exist, which led SolarCity to amend its bylaws. Elon Musk owns over 20 percent of both Tesla and SolarCity, in addition, his cousins Peter and Lyndon Rive are co-founders of SolarCity and both sit on the SolarCity board of directors, while Tesla’s co-founder JB Straubel sits on SolarCity’s board and investor Antonio Gracias has a position on the boards of both companies.

According to a filing this morning, a committee of independent and disinterested SolarCity board members looked over the proposal. The deal is still contingent on the approval of SolarCity shareholders, which hold a majority of shares not owned by Elon Musk and other directors and officers of SolarCity and Tesla.

Elon Musk recused himself from voting on the proposal and has borrowed funds and shuffled assets among his companies to finance the transaction. Musk will recuse himself from any vote on the SolarCity board as well. The companies expect to achieve synergies of $150 million within the first year after the close of the transaction.

Other News About SCTY

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2 Major Flaws in Elon Musk's Energy Master Plan

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Published on Aug 1, 2016
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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