If you thought that Tesla Motors, Inc.
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Tesla shares fell 7 percent to US$204 in extended trading on Tuesday, while SolarCity shares rose about 23 percent to US$26.05. Tesla CEO Elon Musk will hold a press call shortly. The logic behind the takeover, as far as we can tell, is Tesla Motors’ other business – energy storage.
A release from Tesla says that the combination of the two firms, “would be the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers”. We break news every day.
“I don’t think this creates additional financial risk for Tesla”, Musk said, saying the deal would not add significant debt to the Tesla balance sheet.
Tesla in a letter to SolarCity’s chief executive said its offer represented a value of $26.50 to $28.50 a share, or a premium of roughly 21% to 30% over SolarCity’s Tuesday closing price of $21.19. Another aim here is to expand Tesla’s addressable market more than either company could do on its own, which could maximize and build on the core competencies of each company.
Tesla said its board “is excited at the prospect of a potential combination of SolarCity’s business with Tesla”.
SolarCity and Tesla have never been very distant.
Musk, who is also the chairman and principal shareholder of SolarCity, described the deal as “no brainer” in a call with reporters. The vote happens after the due-diligence process by the board is completed.
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In light of Elon Musk’s SEC disclosure obligations in his individual capacity as a stockholder of SolarCity this proposal will be publicly disclosed, but Tesla’s intention is to proceed only on a friendly basis. The deal would pay a premium of 21% to 30% on top of SolarCity’s value of $2.14 billion, so Tesla would be buying SolarCity for between $2.59 billion and $2.78 billion worth of its stock.
