Tesla buying SolarCity as part of new master plan

Michael Wayland
The Detroit News

Tesla Motors Inc. will pay about $2.6 billion for solar-panel maker SolarCity Corp. in an all-stock deal that was previously panned by Wall Street.

Tesla on Monday said the independent members of the Tesla and SolarCity boards of directors approved the transaction, with both companies filing documents with the U.S. Securities and Exchange Commission.

The transaction gives SolarCity stockholders 0.110 Tesla common shares per SolarCity share, which puts the value of SolarCity stock at $25.37 per share. Tesla previously said it would offer $23.56 to $25.30 per SolarCity share.

Tesla shares Monday morning declined to less than $231 per share after opening up at $235.50. SolarCity shares were down about 5 percent to $25.40 per share.

The proposed deal is expected to close in the fourth quarter, with SolarCity surviving the merger as a wholly owned subsidiary of Tesla, according to SEC documents.

Tesla expects to achieve cost synergies of $150 million in the first full year after closing, according to Chief Financial Officer Jason Wheeler. Savings, he said, are expected to include sales and marketing; supply chain efficiencies; and installation and service costs.

“We think each company has things that they can provide, which as a combined entity really increases the financial profile and gives us great confidence in the future,” Wheeler said Monday morning on a call with financial investors.

Intentions of the Palo Alto, California-based electric vehicle manufacturer to purchase the solar panel manufacturer were announced in June by Tesla CEO Elon Musk, who is the chairman and biggest shareholder of both companies.

Combining Tesla and SolarCity is part of a new master plan for the company that Musk released last month that included focusing the combined companies into a cohesive company that delivers SolarCity solar panels, Tesla Powerwall energy storage units and Tesla electric vehicle charging stations. He reiterated those intentions Monday morning as a way to help solve “the sustainable energy problem.”

“That’s why we’re all doing this; to try and accelerate the advances of the sustainable energy world,” Musk, said, adding he recused himself from discussions and voting. “I think this is an important step in that direction.”

SolarCity co-founder and CEO Lyndon Rive, a cousin of Musk, said “it’s going to be very clear” about the cost savings and lower energy costs that the combined companies can provide.

“I’m very excited about this next phase,” he said during the call. “I think together we can really accelerate the adoption of clean energy.”

The SolarCity plans were met with skepticism when announced in June. Tesla never has reported a net profit selling high-end luxury electric vehicles, and there is doubt that a move to solar will help get Tesla into the black.

“Separately, while we think Tesla’s new master plan may build a long-term technological monument, we think it will create a short-term cash flow sinkhole,” Efraim Levy at S&P Global Market wrote in a recent research note to investors. “Musk’s new plan changes the investment thesis from an automotive technology leader heading to the mass market with self-driven sustainable profitability, to a company that will continue to dilute value for existing shareholders.”

The Tesla-SolarCity merger is contingent upon regulatory and shareholder approval. SolarCity has through Sept. 14 to seek an alternative buyer.


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Twitter: @MikeWayland