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Mergers and Acquisitions

Tesla Motors to acquire SolarCity for $2.6bn

Sanghamitra Kar
2nd Aug 2016
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The spree of major acquisitions and merger announcements is likely to continue this week - Tesla Motors has agreed to buy solar panel installer SolarCity for $2.6 billion in shares and form a combined entity, which will serve as a one-stop destination for clean energy.

The company, in its official blog, posted, “As one company, Tesla (storage) and SolarCity (solar) can create fully integrated residential, commercial and grid-scale products that improve the way that energy is generated, stored and consumed.”

Notably, Tesla Chief Executive Elon Musk is also the chairman and a major shareholder at SolarCity, an electric car company.

Elon_musk_yourstory

Musk had hinted at the deal in June and said that the deal was subject to the approval of “a majority of disinterested stockholders” of both the companies. He had also said that the merger of the two entities would provide significant benefits to their shareholders, customers and employees.

Here is a copy of the letter that Elon Musk had written to the Chief Executive Officer of SolarCity in June:

 

June 20, 2016

Mr. Lyndon R. Rive

Chief Executive Officer

SolarCity Corporation

3055, Clearview Way

San Mateo, CA 94402

Dear Lyndon:

We are pleased to submit to you and the SolarCity board of directors a proposal to acquire all of the outstanding shares of common stock of SolarCity in exchange for Tesla common shares. Subject to completing due diligence, we propose an exchange ratio of 0.122x to 0.131x shares of Tesla common stock for each share of SolarCity common stock. This proposal represents a value of $26.50 to $28.50 per share, or a premium of approximately 21 percent to 30 percent over the closing price of SolarCity’s shares, based on today’s closing price of SolarCity’s shares and the five-day volume weighted average price of Tesla shares. We believe that our proposal offers fair and compelling value for SolarCity and its stockholders, while also giving SolarCity’s stockholders the opportunity to receive Tesla common stock at a premium exchange ratio and the opportunity to participate in the success of the combined company through their ongoing ownership of Tesla stock.

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.

We are committed to a possible transaction that is fair to SolarCity’s and Tesla’s respective stockholders. To help ensure that, Tesla is prepared to make the consummation of a combination of our companies subject to the approval of a majority of disinterested stockholders of both SolarCity and Tesla voting on the transaction. In addition, as a result of their overlapping directorships, Elon Musk and Antonio Gracias have recused themselves from voting on this proposal at the Tesla board meeting at which it was approved, and will recuse themselves from voting on this proposal at the SolarCity board as well. We believe that any transaction should be the result of full and fair deliberation and negotiation by both of our boards and the fully-informed consideration of our respective stockholders.

Our proposal is subject to the satisfactory completion of due diligence, the negotiation of mutually agreeable definitive transaction documents, and final approval by the Tesla board. While a transaction would be further subject to customary and usual closing conditions, we believe that Tesla is well positioned to negotiate and complete the transaction in an expedited manner. We do not anticipate significant regulatory or other obstacles in consummating a mutually beneficial transaction promptly.

In light of Elon Musk’s SEC disclosure obligations in his individual capacity as a stockholder of SolarCity, this proposal will be publicly disclosed, but Tesla’s intention is to proceed only on a friendly basis.

We look forward to discussing a potential transaction with you, and hope to expeditiously enter into a definitive agreement.

Sincerely,

The Board of Directors of

Tesla Motors, Inc.

In a filing on Monday, a special committee of “independent and disinterested” SolarCity board members evaluated the proposal and agreed to close the deal. Elon and Antonio J. Gracias, the CEO of Valor Management Corp, who is also among the Board of Directors at SolarCity, refrained from voting on this proposal at the Tesla board meeting.

Founded in 2006, by brother duo Lyndon Rive and Peter Rive, SolarCity has been a leading provider of solar energy services to residential, commercial and industrial markets and non-profit organisations. The company filed for an IPO on the NASDAQ exchange in 2012 with a market cap of around $600 million.

Tesla is scheduled to release its second-quarter results on August 3, and according to earlier reports, its deliveries for the quarter fell short of its forecasts. But surely, this acquisition has unveiled ample avenues and paved the way for steep growth and higher stakes. 

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