Elon Musk has taken a step towards rolling up his different corporate interests, using the high-flying stock of electric car company Tesla Motors to make an all-stock offer worth nearly $3bn for solar power company SolarCity.
The prospect of Tesla paying a substantial premium for a company in which Mr Musk is already the chairman and the largest shareholder unnerved Wall Street and knocked nearly 13 per cent from Tesla shares in after-market trading.
The $4.1bn that was wiped from Tesla’s stock market value overshadowed a $500m jump in SolarCity’s share price on the news.
Mr Musk said that shareholders in both companies would vote on the deal, and that he would abstain from voting both his 21 per cent stake in Tesla and his 22 per cent SolarCity interest. “This would only move forward if there is a majority vote of the non-me shareholders in both companies,” he said.
The dent to Tesla’s share price comes in stark contrast to the strong backing Mr Musk has been able to count on from investors up to now when issuing more stock to finance his company’s ambitions expansion. The company raised nearly $1.5bn from a stock sale last month as it scaled up plans for first proposed mass-market vehicle, the Model 3.
“My personal opinion is that obviously this is something that should happen — like it’s a no-brainer,” Mr Musk said in conference call on Tuesday afternoon to announce the deal.
By adding SolarCity’s solar panel installation and leasing business to Tesla’s electric cars, battery manufacturing and electricity storage, Tesla would become an “integrated sustainable energy company,” he said.
SolarCity, run by Lyndon Rive, Mr Musk’s cousin, has had a mixed record since it went public in 2012. It rode a wave of enthusiasm for domestic solar installation as the price of panels fell steadily, sending its stock market value up to more than $8bn by early 2014.
However, the credibility of the company’s management has been “at risk” after it “missed [expectations] or guided down multiple quarters in a row,” analysts at Deutsche Bank wrote in a report to investors earlier this year. Its stock price hit a low of $16.31 earlier this year, down from a high of more than $61 a year ago.
Folding SolarCity into Tesla would boost both companies, for instance by making it possible to sell solar panel installation through the car maker’s stores, Mr Musk said. The company’s products would also become more tightly integrated, he said.
Tesla sells a home electricity storage unit called Powerwall that is also sold to SolarCity customers. The carmaker is building a massive battery plant in Nevada to supply both its electric vehicles and power storage businesses. SolarCity’s customers use the same technology to store excess power produced by their panels.
“You’ll be able to go into a store and with a few clicks and a few words get everything from batteries to solar panels to electric cars,” Mr Musk said. Combining the two companies could also boost demands for SolarCity’s services, he added: “Most of our [Tesla] customers have an interest in solar — I’d be shocked if they don’t.”
While the all-stock offer came at a low point in SolarCity’s fortunes, Mr Musk said the timing was determined by both companies’ product plans, with Tesla “wrapping up its activities … with energy storage”. He added: “From a consumer experience standpoint, everything will work together really well … It’s a single customer relationship that needs to be maintained, rather than multiple ones.”
Tesla said it would issue 0.122-0.131 of a share for each share of SolarCity. Based on Tesla’s closing price on Tuesday, that was equivalent to $26.79-$28.77 a share. SolarCity’s shares had ended the day earlier at $21.19.
Tesla did not immediately explain how the precise exchange ratio would be calculated. Companies generally use “collars” in all-stock deals to give shareholders in a selling company a degree of downside protection if the share of the buyer falls.
Based on the 13 per cent after-house decline in Tesla’s shares, SolarCity shareholders would get stock worth a maximum of $25.10, equivalent to an 18 per cent premium.