Tesla to Acquire Sister Firm SolarCity for $2.6B

Both companies' shares fall amid concerns about their cash flow and the rationale for the merger.
Matthew HellerAugust 1, 2016

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.

In a regulatory filing, Tesla said SolarCity’s board had approved the deal, which is worth $200 million less than the initial offer Tesla made last month. Musk, who is the chairman and largest shareholder of both companies, recused himself from the vote.

“Solar and storage are at their best when they’re combined,” the companies said. “As one company, Tesla (storage) and SolarCity (solar) can create fully integrated residential, commercial and grid-scale products that improve the way that energy is generated, stored and consumed.”

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Under the terms of the deal, SolarCity stockholders will receive 0.11 share of Tesla for each share of SolarCity, valuing them at $25.83 apiece. “It’s really all part of solving the sustainable energy problem,” Musk said. “That’s why we are all doing this to accelerate the advent of a sustainable energy world.”

But in trading Monday, SolarCity shares fell more than 7% to $24.74 while Tesla dropped 1.3% to $231.70 amid concerns about the companies’ cash flow and the rationale for the deal.

“I’m sure [Musk would] like us to look at this as becoming the leader of clean energy but there’s still a lot of questions about this deal and I’m not really sure if it makes sense for investors, for the company, at all,” New York Times columnist Farhad Manjoo told CNBC.

According to the Los Angeles Times, backers of the deal say customers would be able to buy a single system to generate solar power from Tesla rooftop installations, store the energy in Tesla batteries and transfer the energy into their Tesla electric cars.

But Manjoo questioned that concept, saying, “What’s unclear is why they can’t do that right now, why SolarCity can’t do that right now and what makes it better if these two companies are together.”

The merger agreement includes a 45-day “go-shop” period during which SolarCity would be open to alternative acquisition proposals.