Tesla – SolarCity deal

Tesla is all set to acquire SolarCity, which could make it the largest clean energy company. Tesla is known for its many energy efficient innovations like electric vehicles, Powerwall etc. SolarCity has already been using Tesla batteries as a part of its solar projects. Tesla’s acquisition of SolarCity will further add solar system to its portfolio, making it easier for customers to charge their electric vehicles. Not only would this improve the energy consumption patterns but also reduce reliance on the grid.

The Benefits

It could be a win-win situation for both as Tesla could benefit from SolarCity’s residential customer list and SolarCity could use Tesla’s expertise in technology and innovation to shine further. Synergies could be seen at the product, service and operational levels too.

The Offer

Tesla has proposed to buy SolarCity at a value of $26.50 – $28.50 per share. This is at a premium of ~21-30% over the closing price of SolarCity’s shares, based on the date of proposal. Tesla stock would be issued to SolarCity shareholders at a ratio of 0.122-0.131x shares for each share of SCTY. This deal could be worth as much as $2.8 billion. Tesla’s stock however declined ~13%, whereas SolarCity went up by 18% after the deal was announced.

The Result

The proposal is still open and is subject to due diligence. Elon Musk is the chairman and largest shareholder in both Tesla and SolarCity, which is raising conflict of interest. The market is viewing this deal more as a bailout for SolarCity. Looks like investors are not very happy with the deal as was apparent with the stock movement.

However Elon Musk calls this deal a “no-brainer”. As per his analogy, a customer who is interested in driving an electric car or has a Powerwall storage at his home, will surely want to go solar because they prefer the clean way in life.

“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.”

Source

Though SolarCity has a complex business model, it is the No.1 residential installer in USA. It remains to be seen if this deal gets through and whether it will revolutionize the energy market. SolarCity is looking into establishing a special committee to review the deal. It will be upto the shareholders of both the companies to decide on the deal.