SolarCity Corp settled an agreement with Tesla Motor Inc’s solar panel installer deal for $2.6 billion on Monday, eliminating Elon Musk’s one obstacle towards his ambitious plans for a carbon-free energy and transportation corporation.
The U.S. electric automaker’s offer suggests half of SolarCity’s value to prior year, reflecting a sluggish growth, along with complex financial structure and a mounting scrutiny of government incentives for rooftop solar.
Given that Tesla acquired SolarCity, the company sees a greater economies of scale in line with electrical energy management systems, including battery production and marketing, making the company capable of near-term challenges facing high-risk ramp-up car production and a merger simultaneously.
Meanwhile, Standard & Poors issued a credit rating on Tesla with negative implications "to reflect the significant risks related to the sustainability of the company's capital structure following the proposed transaction."
Tesla shares swap offer valued SolarCity at $25.37 per share, or $200 million, which posted below the initial proposal Musk highlighted in June, before the companies’ advisers had done due diligence.
SolarCity shares lost about 7.4 percent and ended the session at $24.72 on Monday, suggesting a widely expected level of most shareholders for the deal to disclose. Tesla shares have seen a 2 percent decline to settle at $230.01 in late trade.
Musk’s Clean-Energy Aspirations
As several questions were raised about debt, mounting losses, governance and strategic logic, Tesla Motors and SolarCity still proposed their $2.6 billion stock merger on Monday.
Thus, the only role of Elon Musk is to encourage both companies’ shareholders that the deal makes a lot of sense. In addition, the agreement requires shareholders’ approval from both companies in exclusion of Mr. Musk and other insiders.
Disclosure of the deal could settle to whether sufficient market players will agree on having near-term headaches while waiting for Mr. Musk’s long-term vision.
Musk’s idea is that Tesla’s batteries could store the power that panels of Solar City have harnessed, a widely anticipated impression to the mounting use of solar energy. However, several analysts said this vision is expected to take years or even decades to hold a large scale.
“I don’t know why people would be voting in favor of it,” said Efraim Levy, chief automotive analyst at Standard & Poor’s Global Market Intelligence. “The valuation is excessive given the current prospects and the time horizon we’re looking at.”
Get market insights and updates and subscribe to our daily newsletter! FSM News provides accurate market knowledge and information.