Tesla Seals $2 Billion SolarCity Deal

Tesla Motors Inc. and SolarCity Corp. shareholders approved the electric-car maker’s purchase of the solar installer in a deal that’s poised to test Elon Musk’s vision for a viable one-stop shop for clean energy consumers.

More than 85 percent of Tesla shares voted in favor of the deal, according to a company statement Thursday, which said SolarCity shareholders also approved the acquisition. The deal, valued at about $2 billion, integrates the maker of Model S and upcoming Model 3 sedans with the installer of rooftop solar panels.

Shareholders are signing off on Musk’s plan to combine and more efficiently run two companies that have a track record for fleeting profits and frequent fundraising needs. Tesla has lost about $4.8 billion in market capitalization since its initial offer to buy SolarCity on June 21, while the latter company’s value declined by about $86 million.

“We’re trying to make an integrated product,” Musk said during a meeting with Tesla shareholders Thursday. “So you have an integrated solar roof with a Powerwall and an electric car, and you just go into a Tesla store, just say yes, it just happens. It all works, it’s seamless and you love it.”

Tesla has forecast SolarCity will add $1 billion in revenue to the combined company next year and $500 million in cash to its balance sheet over the next three years. Joining Tesla’s retail network with SolarCity’s installers and consolidating the two companies’ supply chains may result in an estimated $150 million in cost synergies within a year. The companies didn’t say how many SolarCity shares voted in favor of the deal. Jonathan Bass, a SolarCity spokesman, didn’t respond to phone calls or e-mail messages.

“With an 85 percent vote, you’re seeing long term shareholders say we’re voting for Elon,” said Ben Kallo, an analyst with Robert W. Baird. “They’re saying ’We’re not here for the next quarter, we’re here for three or five years.’”

It wasn’t clear when the merger will officially close. And as SolarCity becomes a unit of Tesla, it’s not clear if it will cease to exist as a stand-alone brand.

“Moving forward I think SolarCity becomes a part of Tesla Energy, but I don’t think that happens overnight,” said Kallo.

During the course of his campaign for the merger, Musk last month showcased a solar roof product on the “Desperate Housewives” set at Universal Studios in Los Angeles. Musk said Thursday the product will cost the equivalent of, or slightly cheaper, than normal roofs, and that installations will begin in volume from mid-2017.

Largest Shareholder

Musk owns 21 percent of Tesla and 22 percent of SolarCity, making him the largest shareholder of both companies. He and Antonio Gracias, who also serves as director at both companies, recused themselves from a board vote on the takeover July 30.

Tesla rose 2.6 percent to $188.66 at the close Thursday, while SolarCity gained 2.9 percent to $20.40. At those prices, the all-stock deal values the solar company at $20.75 a share, a 1.7 percent premium over Thursday’s closing price. The premium was about 35 percent when first announced.

The quarterly profit Tesla reported last month was the first for the Palo Alto, California-based company in eight quarters. SolarCity has recorded losses in six of the last eight quarters. The two companies have conducted five separate equity offerings since the San Mateo, California-based solar company first sold shares to the public in December 2012.

Mixed Reviews

The deal drew mixed recommendations by proxy advisory firms, with Institutional Shareholder Services giving its blessing and Glass Lewis & Co. rejecting it as a “thinly veiled bailout plan.” ISS said Tesla would be able to bridge cash-burning SolarCity’s funding gap and called the deal a “necessary step” in the electric-car maker’s push to become an integrated sustainable energy company.

The combined company’s attention will now look forward to the aftermath of America having elected Donald Trump as its next president. The real-estate mogul has vowed to relax environmental regulations and tapped Myron Ebell, a climate-change skeptic, to head of his Environmental Protection Agency transition team.

Gordon Johnson, an analyst at Axiom Capital Management Inc., downgraded seven solar companies Tuesday, citing his expectation for less favorable renewable energy policies from Trump’s administration. 

Musk, a South Africa-born immigrant, has come under fire from conservative activists who would like to roll back subsidies for clean energy. The advocacy group Citizens for the Republic has called for Congress to end federal subsidies for “all Elon Musk companies,” including solar investment tax credits.

Fans of Musk and his vision, meanwhile, doubled down heading into Tesla and SolarCity’s vote Thursday. Austen Allred, an executive at San Francisco-based startup LendUp, wrote Musk on Twitter to say he “put 100 percent of his net worth” into Tesla, adding: “Don’t even care if I lose it all. Thank you for what you’re doing and have done.”

“Wow, thanks,” Musk wrote back Wednesday. “We won’t let you down.”

©2016 Bloomberg News

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