Tesla acquiring SolarCity in $2.6B all-stock deal; expected close of transaction in Q4
01 August 2016
Tesla and SolarCity reached agreement for the automaker’s purchase of the solar company in an all-stock deal valued at $2.6 billion—slightly less than the original $2.8-billion proposal made by Tesla just over a month ago. (Earlier post.) SolarCity will operate as a wholly-owned subsidiary of Tesla.
The all-stock transaction is valued based on the 5-day volume-weighted average price of Tesla shares as of 29 July 2016. Under the agreement, SolarCity stockholders will receive 0.110 Tesla common shares per SolarCity share, valuing SolarCity common stock at $25.37 per share based on the 5-day volume weighted average price of Tesla shares as of 29 July2016. The original proposal was an exchange ratio of 0.122x to 0.131x shares of Tesla common stock for each share of SolarCity common stock.
Tesla Chairman and CEO Elon Musk is also Chairman of SolarCity; Antonio Gracias, CEO of investor Valor Management Corp., is on both Tesla and SolarCity boards. Musk and Gracias recused themselves from the decision.
After due diligence in consultation with independent financial and legal advisors, the independent members of the Tesla and SolarCity boards of directors approved the transaction. Tesla’s financial advisor was Evercore, and Wachtell, Lipton, Rosen & Katz was its legal advisor. The financial advisor to the special committee of SolarCity’s board of directors was Lazard and its legal advisor was Skadden, Arps, Slate, Meagher & Flom.
As part of the agreement, SolarCity has a 45-day period known as a “go-shop”, which runs through 14 September 2016. This means that SolarCity is allowed to solicit alternative proposals during that time. Each company today filed a Form 8-K with the SEC that provides additional details regarding the transaction.
Tesla argues that as one company, Tesla (with its storage products) and SolarCity (solar) can create fully integrated residential, commercial and grid-scale products that improve the way that energy is generated, stored and consumed.
Tesla said it expects to achieve cost synergies of $150 million in the first full year after closing. It also expects to save customers money by lowering hardware costs, reducing installation costs, improving manufacturing efficiency and reducing customer acquisition costs.
Tesla expects the transaction to close in the fourth quarter of 2016. The deal must be approved by a majority of the disinterested shareholders of both Tesla and SolarCity voting at each shareholder meeting. It also needs to obtain regulatory approval and meet other closing conditions.
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