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Tesla and SolarCity Agree to $2.6 Billion Deal
| Wall Street Journal | - |
Tesla
Motors Inc. TSLA -0.60 % on Monday said it had reached a deal to buy
SolarCity Corp. SCTY -4.53 % , the next step in Elon Musk's plan to
combine his electric-car and solar-energy companies.
Tesla and SolarCity Agree to $2.6 Billion Deal
Tesla and SolarCity Agree to $2.6 Billion Deal
Electric car maker had made an offer in June to buy solar-energy company also chaired by Elon Musk
ENLARGE
Tesla Motors Chief Executive Elon Musk, who is also chairman of SolarCity, speaks in 2015.
Photo:
Getty Images
The all-stock deal values SolarCity at about $2.6 billion, with SolarCity stockholders receiving 0.11 share of Tesla for each share of SolarCity, valuing them at $25.83 apiece, according to Friday’s closing prices.
The deal’s value comes in lower than the original range of $26.50 to $28.50 per share Tesla had proposed in June. Mr. Musk said Monday he wasn’t involved in talks about the valuation of the purchase.
“I know about as much as you do about how the price was obtained,” he said to an analyst on a conference call. Mr. Musk and other key members of the boards of both companies recused themselves from the analysis of the deal.
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“It’s really all part of solving the sustainable energy problem,” Mr. Musk said. “That’s why we are all doing this to accelerate the advent of a sustainable energy world.”
Mr. Musk, who owns more than 20% of both companies and is largest shareholder in both, in June proposed pairing the companies that he backs as a means to vertically integrate his battery-storage business at Tesla with the solar panel company. In a statement, Tesla and SolarCity said a joint company would recognize $150 million in cost savings in the first full year after closing the transaction.
The biggest area of cost savings may come from lowering SolarCity’s cost to obtain customers by leveraging Tesla’s strong brand recognition and retail store locations. The solar company’s cost to acquire new customers spiked 80% in the first quarter from the previous quarter, to more than 30% of the overall cost of installing a home solar panel system.
“I think $150 million is conservative,” Mr. Musk said. “I think we will significantly exceed that in the first year.”
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Tesla in a filing Monday said a special committee of “independent and disinterested” SolarCity board members evaluated the proposal. Mr. Musk, who has borrowed money and shuffled funds among his companies, recused himself from voting on the deal at the Tesla board meeting at which it would be approved and would do so for any vote on the SolarCity board as well, the initial offer letter said.
Tesla and SolarCity have numerous overlapping interests on their boards. Mr. Musk is chairman of both companies. His cousins Lyndon and Peter Rive are the founders of SolarCity, and both sit on the SolarCity board. In addition, Tesla’s co-founder JB Straubel is on SolarCity’s board and investor Antonio Gracias sits on the board of both companies.
The strong ties between the two firms have raised conflict-of-interest questions over the deal, potentially opening it up to lawsuits. Monday, SolarCity’s Board said it had amended the company’s bylaws to require potential lawsuits to take place in business-friendly Delaware.
Tesla, with a market capitalization of about $34.6 billion, is a much larger company than SolarCity, whose market value is roughly $2.6 billion after rising in recent months after Tesla made its buyout offer.
Following the initial announcement of the offer, Tesla shares plunged 10% as investors expressed skepticism about the benefits of the deal. Mr. Musk, however, spent time talking to some of the largest shareholders, including the Fidelity, which is the biggest holder outside of himself in both Tesla and SolarCity. In an interview, Mr. Musk said he was confident shareholders would approve the acquisition.
Mr. Musk recently unveiled a strategy document that envisioned a combined entity that sold solar systems and cars from the same retail stores. The companies said they expected the transaction to close in the fourth quarter after a 45-day “go-shop” period where SolarCity would be open to alternative proposals for purchase.
If either company backs out of the deal without another offer in place, it would owe the other a $78.2 million termination fee; if SolarCity terminates the tie-up to enter into another merger before the expiration the go-shop period, the termination fee owed to Tesla will be $26.1 million.
SolarCity shares lost 5.5% premarket to $25.22 while Tesla shares edged 0.2% higher to $235.30.
Tesla is scheduled to report second-quarter financial results on Wednesday after the market closes.
—Cassandra Sweet contributed to this article
Write to Mike Ramsey at michael.ramsey@wsj.com and Anne Steele at Anne.Steele@wsj.com