Elon Musk, CEO of Tesla Motors Inc., unveils the company’s newest products, Powerwall and Powerpack in Hawthorne, Calif., Thursday, April 30, 2015. Musk is trying to steer his electric car company’s battery technology into homes and businesses as part of an elaborate plan to reshape the power grid with millions of small power plants made of solar panels on roofs and batteries in garages. (AP Photo/Ringo H.W. Chiu)
Tesla MotorsTSLA -2.14% and Solar City announced Monday they have agreed on terms of a merger that would combine Tesla’s electric car and energy storage ambitions with Solar City’s solar power generation business. The all-stock deal was valued at $2.6 billion.
Tesla CEO Elon Musk is a major shareholder of both companies and Solar City is led by his cousin. The proposal to merge the two companies, first floated about a month ago, has raised conflict of interest questions and debates about the companies’ corporate governance. Tesla and Solar City said only independent directors of both companies voted on the merits and terms of the deal, after due diligence and legal advice from independent advisors.
It’s now up to shareholders to decide if combining two money-losing companies will result in long-term profits from what would be the world’s only vertically integrated sustainable energy company.
Musk has said it is an “accident of history” that Tesla and SolarCity were ever developed as separate companies. He said it makes sense to combine energy storage and solar generation in one company that can create fully integrated residential, commercial and grid-scale products that provide a one-stop solar and storage installation.
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In a joint blog post, the companies said now is the right time to merge because Tesla is getting ready to scale its Powerwall and Powerpack stationary storage products and SolarCity is getting ready to offer next-generation differentiated solar solutions.
Analysts and investors have questioned the wisdom of combining two money-losing companies, especially when Tesla is embarking on a difficult, capital-intensive production ramp up for the launch of its most anticipated vehicle, the $35,000 Model 3.
The companies said they expect the deal to achieve cost synergies of $150 million in the first full year after closing, and that it will save customers money by lowering hardware costs, reducing installation costs, boosting manufacturing efficiency and reducing customer acquisition costs. They also expect to use Tesla’s 190-store retail network and international presence to extend the reach of solar power and stationary storage.
“While today’s news is a big step, it isn’t the finish line – we expect the transaction to close in the fourth quarter of 2016,” the companies cautioned. The deal is still subject to approval by “disinterested shareholders” at both companies, and to regulatory approval and “other closing conditions.”
SolarCity stockholders will receive 0.110 Tesla common shares per SolarCity share, valuing SolarCity common stock at $25.37 per share based on the 5-day volume weighted average price of Tesla shares as of July 29, 2016.