Elon Musk’s Tesla Motors and SolarCity have agreed to a $2.6 billion merger that would form the “world’s only vertically integrated sustainable energy company”, but investors reacted coolly to the news, driving the stocks of both companies down on Monday.
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The company is ramping up the production of batteries for its cars as well as its Powerwall and Powerpack electricity storage devices at its billion Gigafactory 1 facility in Nevada.
The merger, which still requires shareholder and regulatory approval, would double Tesla’s workforce to almost 30,000 employees and create a one-stop shop for solar, storage and transportation.
Musk said he believes the companies could save $150 million to $200 million in the first year alone by streamlining manufacturing, sales and service.
This deal isn’t necessarily a lock, as Tesla’s independent shareholders still need to vote on it. (Elon Musk is actually on the board of Solar City, so he has recused himself from voting).
The companies said the deal would also save customers money by lowering hardware costs and reducing installation costs. SolarCity is based in San Mateo, Calif.; Tesla made an offer for the company a month earlier.
The companies said on Monday that SolarCity stockholders would receive 0.110 Tesla common shares for every share held.
SolarCity, which was founded in 2006 and headquartered in San Mateo, has a 45-day “go-shop” period to seek an alternative suitor.
Tesla’s current offer values SolarCity’s shares at $25.37.
Some Wall Streets analysts have criticized the move, citing a conflict of interest, given that Musk also serves as chairman of SolarCity. Tesla’s financial advisor was Evercore, and Wachtell, Lipton, Rosen & Katz was its legal advisor. SolarCity, a prominent name in California’s residential solar panel market since 2007, has a market capitalization of $2.6 billion compared to Tesla’s $34.6 billion.
The deal would see SolarCity shares convert to Tesla shares at a ratio of 0.122 to 0.131.
When the companies first announced their intentions to merge in June, Musk said the combination would make selling clean energy “completely seamless, painless”.
Tesla said it expects the transaction to close in the fourth quarter of 2016.
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Musk owns 23 percent of SolarCity, the United States’ biggest supplier of consumer solar energy solutions.
