SolarCity accepts Tesla Motors' $2.6-bn acquisition offer
02 August 2016
Tesla Motors Inc's $2.6-billion takeover of roof top solar panels manufacturer SolarCity Corp is not a bailout, Elon Musk, cofounder of the two companies.
Tesla Motors made an offer in June this year to buy SolarCity, in an all-stock deal for $2.8 billion in an attempt to make a one-stop shop for cleaner energy (See: Musk's Tesla offers $2.8 bn for his cousins' SunCity to build clean energy ecosystem). SolarCity, in which Musk is both chairman and largest shareholder, is the market leader in residential solar panel installations in the US, but has about $6.24 billion in liabilities, including debt. Musk is also the chairman of Tesla Motors.
SolarCity's stock was down 57 per cent last year and it had reduced its installation forecast twice.
According to commentators, a business model focused on leasing systems rather than selling them was losing favour with consumers. Also competitors like Sunrun Inc were increasing their market share.
''Tesla provides an immediate source of differentiation,'' according to Michael Morosi, an analyst at Avondale Partners LLC. ''It places them in a different stratosphere. Tesla knows how to manufacture things. SolarCity is about to become a manufacturer. They gain immediate knowledge when they need it most,'' Bloomberg reported.
The alliance of SolarCity, the biggest US installer of rooftop solar panels and Tesla, manufacturer of electric cars, which is also opening the world's biggest battery factory, would lead to integrated homes that produced power from sunshine that was stored in batteries to charge vehicles overnight, Musk said in a conference call yesterday.
According to Edwin Mok, an analyst at Needham & Co, joining forces with Tesla would help SolarCity weather a needed strategic shift to selling systems instead of leasing.
''Combined with a more aggressive approach to reduce operating expenses, we believe the business could turn profitable, potentially in the next 12 to 24 months,'' Mok wrote in a research note yesterday.
Meanwhile investors are increasingly voicing questions about debt, mounting losses, governance and strategic logic related to the companies Musk had founded.
According to commentators, it was up to Musk to persuade the shareholders of the two companies he founded, that the deal made sense. The transaction required the approval this year of a majority of shareholders from both Tesla and SolarCity, excluding Musk and other insiders.
The completion of the deal might hinge on whether enough investors had the patience to accept the near-term headaches while waiting for Musk's long-term vision.
Musk's idea was that Tesla's batteries could store the power that SolarCity's panels had harnessed, a bet on the increasing use of solar energy.