Tesla’s Risky SolarCity Acquisition Wins Shareholder Approval

Tesla Motors (TSLA) shareholders overwhelmingly approved that acquisition of SolarCity (SCTY) on Thursday, clearing the way Tesla CEO Elon Musk to create a vertically-integrated energy company.

“Excluding the votes of Elon and other affiliated shareholders, more than 85% of shares voted were cast in favor of the acquisition,” Tesla said in a statement. SolarCity’s shareholders approved the acquisition Thursday morning. The transaction will be completed in the coming days, Tesla said.

SolarCity shareholders will receive 0.11 share of Tesla, worth $20.75 based on Thursday’s closing price, for each SolarCity share, making the deal worth about $2.1 billion.

Musk initially announced the acquisition offer on July 21, which at the time valued SolarCity at $2.8 billion. The offer price was renegotiated to about $2.6 billion in August after widespread criticism of the deal and further review by Tesla.

IBD’S TAKE: While Tesla buys SolarCity and gears up for its Model 3, would-be Tesla-killers are growing. Mercedes and Jaguar showed off their electric cars at the L.A. Auto Show.

Musk had called the combination of both companies  “a no-brainer,” believing that the acquisition of SolarCity would transform it into a vertically-integrated energy company’ that would be able to sell electric cars, make and sell energy storage for buildings and the grid, and make and install solar panels, all under one roof.

Tesla stock closed Wednesday at 188.66, up 2.6% in the stock market today. SolarCity stock rose 2.4% and closed at 20.27.

After the closing bell, when the news broke, Tesla stock was up a fraction, near 189.50, while SolarCity was up 2%, near 20.80.

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The deal had been widely criticized by equity analysts, with Goldman Sachs saying it would create a “higher risk entity.” But early this month Tesla received the endorsement of a major shareholder advisory firm in its bid to acquire SolarCity. International Shareholder Services said shareholders of both companies should vote in favor of the controversial deal. It came two days after Tesla put forth its strongest case yet about why shareholders should approve the acquisition. In a lengthy blog post, Tesla said it can achieve more than $150 million in cost savings in the first full year after completing the acquisition. The transaction is also expected to add $500 million to Tesla’s cash balance sheet over the next three years and add $1 billion in revenue to the combined company in 2017.

But another proxy advisory firm, Glass Lewis, blasted the deal as a “thinly veiled bailout.” Glass Lewis  cited the “uncomfortable relationship between SolarCity’s near-crippled financial position and Mr. Musk’s personal interest — both direct and indirect — in preventing the rather pronounced, public collapse of an affiliate enterprise.” SolarCity has debt of about $3.25 billion, which has been essential for its growth. The two companies combined would have debt of more than $6 billion. SolarCity had revenue in 2015 of $399.6 million, up 57% year over year. Tesla showed revenue of $4 billion in 2015, up 27%.

Musk made a Tesla-SolarCity merger a big part of his recent “Secret Master Plan Part Deux” that outlined his long-term vision for the electric-car company in combination with SolarCity.

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The acquisition plan comes at a time when Tesla is juggling several clubs. As it works to complete the deal and integration of both companies Tesla is working on ramping production as it works on completing a massive battery plant in Nevada, while it also gears up to produce the Model 3, which is slated to start deliveries in late 2017.


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View more information: https://www.investors.com/news/technology/teslas-risky-acquisition-of-solarcity-gets-shareholder-approval/

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