That bid has now been accepted and will see Tesla acquiring Solar City for R36 billion ($2.6 billion). In the case of both SolarCity and Tesla, Musk has taken out personal loans worth $475 million to buy shares of the two companies when they needed funding.
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While the deal has a lot to offer to Tesla, Baird analyst believes it is highly unlikely that the shareholders would approve the merger. The solar panel installer reported a net loss of $769 million in 2015. Tesla is working feverishly on its new, lower-cost Model 3 sedan, which is due out by the end of next year, and Musk recently said the company is also working on electric buses and semi-trucks.
The deal, according to Tesla, would accelerate the company’s transition into a fully integrated, renewable-energy products company, improving “the way that energy is generated, stored and consumed”.
The deal may draw more attention to the financial position of both companies. “Until then it’s very limited what we can do unless we are one company”.
Tesla which has a market capitalization of $34.6 billion and SolarCity which has the market cap of $2.6 billion said after the deal closes, they could collectively receive the benefits of $150 million in cost synergies in the first year. “You get a larger company that combines the weaknesses of both smaller companies”, said Erik Gordon, professor at the University of Michigan Ross School of Business. If the deal valuation is approved by the shareholders, it would result in Tesla’s workforce being doubled to nearly 30,000 employees and create a unique hybrid of transportation, power storage and now solar product offerings.
Tesla later this year plans to start production of vehicle batteries at its Gigafactory near Reno, Nevada. He said that it could reach customers, installing roof solar panels, sending power to Tesla storage batteries in their homes, and Tesla cars in their garages. Back in June of this year, the electric vehicle producer had proposed a range of $26.50 and $28.50 per SolarCity share.
San Mateo’s SolarCity is led by two of Musk’s cousins, Lyndon and Peter Rive. Shares of Tesla and SolarCity were both down slightly in trading today. Reportedly, the company is also interested in ride-sharing services.
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The deal also includes a 45 day period “go-shop” provision, which will allow SolarCity to solicit from alternative proposals during the time period.
