Tesla Motors Inc. announced that it has entered into a stock merger deal with SolarCity. Under the agreement, the electric car maker will purchase the solar energy company for $2.6 billion, making it the biggest solar power transaction to date.
Elon Musk founded both companies. He is the chairman of SolarCity and is the chief executive officer of Tesla Motors.
According to Reuters, Musk had earlier indicated that combining Tesla and SolarCity is part of his overall scheme to create a one-place pit stop for green cars and clean energy and to offer consumers a single source of hardware that powers a low-carbon lifestyle. This means Tesla's batteries being able to store the power harnessed by SolarCity's panels.
The New York Times reported that Musk still needs to persuade shareholders of both companies to approve the deal. The agreement requires the approval of a majority of Tesla and SolarCity shareholders this year.
Tesla mentioned in a recent statement that a committee of independent and disinterested SolarCity board members evaluated its merger offer. And as a sign of good faith, Musk, who is also the biggest investor in both companies, had recused himself from voting on the deal at the Tesla board meeting and will also do the same during the SolarCity board meeting.
NY Times wrote that the completion of the merger will depend on whether enough investors can patiently accept the near-term headaches as they wait for Musk's long-term vision to be realized.
The move is part of solving the problem on sustainable energy, Mr. Musk said in a conference call with analysts earlier this week. "We are all doing this to try to accelerate the advent of a sustainable-energy world."
However, the report noted, analysts believe that this vision could take many years, even decades, to realize on a large scale. This amount of time is longer than investors tend to wait.
NY Times cited Standard & Poor's Global Market Intelligence chief automotive analyst, Efraim Levy, as saying that he doesn't understand how anybody would vote in favor of the deal. He said that "the valuation is excessive," considering the time horizon as well as the current prospects.
However, the report wrote that stocks traded on Monday as if most of the investors expected the deal to push through.
Reuters noted that Tesla shares closed at $234.79 on Friday, after dropping to below $190 per share directly following the offer, while SolarCity shares closed at $26.70.
SolarCity's total share value is at about $2.6 billion, and as a part of the deal, its shareholders will be getting 0.11 shares of Tesla per SolarCity share, thereby valuing them at $25.83 apiece.
The deal stipulates that SolarCity is required to pay a termination fee of $78.2 million to Tesla if it backs out from the contract. However, this termination fee could be lowered to only $26.1 million, as the offering from Tesla comes with a "go-shop" provision, allowing SolarCity to solicit merger offers from different buyers until Sept. 14.
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