Tesla makes offer to acquire SolarCity
- PV Tech: Tesla Makes Offer to Acquire SolarCity
- Video: Elon Musk Conference Call Q&A
- Charged EVs: Tesla offers to buy SolarCity
Tesla makes offer to acquire SolarCity
By John Parnell, Jun 22, 2016 9:10 AM, PVTech
Tesla has made an offer to acquire SolarCity.
The company announced overnight that it had made a stock swap offer at a ratio that would give SolarCity shareholders a 21-30% premium.
In a letter to SolarCity CEO Lyndon Rive, Tesla founder Elon Musk’s cousin, Tesla said:
The board of directors of Tesla is excited at the prospect of a potential combination of SolarCity’s business with Tesla. We believe that the possibilities for product, service and operational synergies would be substantial, and that a combination would allow our companies to build on our respective core competencies and remain at the forefront of delivering innovative approaches for sustainable transportation and energy. We believe that a combination would generate significant benefits for stockholders, customers and employees of both Tesla and SolarCity.
Tesla Official Blog Post
The following blog post on the Tesla website provided more details on the proposed integration of the two companies.
Tesla’s mission has always been tied to sustainability. We seek to accelerate the world’s transition to sustainable transportation by offering increasingly affordable electric vehicles. And in March 2015, we launched Tesla Energy, which through the Powerwall and Powerpack allow homeowners, business owners and utilities to benefit from renewable energy storage.
It’s now time to complete the picture. Tesla customers can drive clean cars and they can use our battery packs to help consume energy more efficiently, but they still need access to the most sustainable energy source that’s available: the sun.
… more …
Reaction from Financial Sector
The proposed deal has been met with a mixed reaction. Credit Suisse analyst Patrick Jobin has predicted “resistance” from Tesla shareholders and warned of potential governance issues.
Speaking on a conference call on the deal, Musk said he “wished the deal could have been done sooner” and that he certainly didn’t think it was happening too early.
Discussing the operational benefits of the deal, Musk said the integrated PV, storage and EV offering could be perfected with all components brought in-house.
“It means we can sell more from the same store. It also means we can install more in one visit instead of making two or three. I don’t know what percentage that improvement will be but it will be material.”
He also clarified that there will be no exclusivity with Tesla products and SolarCity panels and that they were not going to shut out other suppliers. “We’re not looking to be a jerk to other solar companies.”
Tesla offers to buy @solarcity https://t.co/STRxghwn7U Would be first $multi-billion renewable/EV combo. More #writingonwall for Big Oil.
— Jeremy Leggett (@JeremyLeggett) June 22, 2016
June 22 – Conference call and Q&A
On June 22 at 7:35AM EST (very early 4:35AM in Elon Musk’s time zone), Elon Musk held a conference call where he explains the deal and answers some questions. The blog is here.
Elon Musk from the blog:
I think from a gut standpoint: what allows us to offer the most compelling product to consumers and business. A seamless integrated product is better. You don’t want a heterogenous system integration problem. Interfaces break down, and people pointing fingers. One integrated system just works. We can guide the integrated product to just be better. In addition, cost savings to be had in the same store, if we can sell twice as much dollar volume. If installation crew is able to do everything in a single visit, then that’s much better. Some percentage better, that’s material. That’s the threshold for making a decision. If you just cut the business logistics costs in half. With a seamless product, you have fewer breakdowns.
Does this increase our debt position? It really doesn’t. We’ll take a closer look at SolarCity. What really matters is recourse debt only. Cash flow is generating enough for the recourse debt. SolarCity is headed for a cash flow positive situation for the next 3-6 months. Reducing their growth rate to achieve cash flow positive. We expect it to be a net cash generator, when taking into account the greatly reduced cost of sales when made through our stores.
Charged EVs: Tesla offers to buy SolarCity
June 22, 2016, Charles Morris
Charged Electric Vehicles Magazine
Elon Musk made a move to consolidate his business empire as Tesla announced an offer to buy SolarCity for around $2.8 billion. Musk is the Chairman of SolarCity, CEO of Tesla, and the largest shareholder of both companies. Musk and Antonio Gracias, who is also on the board of directors at both companies, recused themselves from voting on this proposal.“This is something that we have been thinking about and debated for many years,” Musk told reporters. “but the timing seemed to be right now,” as Tesla is ramping up production of batteries. Tesla touted several benefits of the merger, including:
We would be the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers. With your Model S, Model X, or Model 3, your solar panel system, and your Powerwall all in place, you would be able to deploy and consume energy in the most efficient and sustainable way possible.
We would be able to expand our addressable market further than either company could do separately. Those who are interested in buying Tesla vehicles or Powerwalls are naturally interested in going solar, and the reverse is true as well.
Tesla’s experience in design, engineering, and manufacturing should help continue to advance solar panel technology, including by making solar panels add to the look of your home.
SolarCity’s wide network of sales and distribution channels and expertise in offering customer-friendly financing products would significantly benefit Tesla and its customers.
Stock Prices
As is usually the case when a takeover is announced, shares of the purchased company rose – SCTY was up around 10% in Wednesday morning’s trading – and shares of the purchasing firm dropped – TSLA lost around 8%.
Some stock analysts are skeptical about the deal. SolarCity has been struggling over the last year, as legacy utility companies have started using their clout in state legislatures to put the brakes on distributed solar power. The company has about $6.24 billion in debt and other liabilities.
“Ideally you want to see Tesla focus on Tesla – building Teslas and expanding the cars,” Ivan Feinseth, an analyst at Tigress Financial Partners, told Reuters. “Maybe the feeling is that this takes away focus, and it could financially strain Tesla, which is going to continually need a lot of cash.”
However, Tesla executives pointed out that SolarCity’s predictable cash flow from existing installations allows it to keep its debt current. Lyndon Rive says that SolarCity is on schedule to be cash-flow positive in Q4 2016.
“I don’t think this creates additional financial risk for Tesla,” said Musk, adding that the acquisition will not add significant debt to Tesla’s balance sheet. “I think it actually amplifies the opportunity for both companies.”
