Tesla Closes SolarCity Offer with Lower Share Price
Elon Musk’s plan to unite the two halves of his solar-electric empire crossed another threshold on Monday, but equity markets reacted poorly to the acceptance by independent board members for both companies of an all-stock deal that will merge solar developer Solar City with Musk’s Tesla Motors.
The final, US$2.6 billion merger agreement, announced August 1, valued SolarCity stock at $25.37 a share, Reuters reports, “or $200 million less than the initial proposal Musk outlined in June, before advisers to the companies had done due diligence.” On the day the deal was announced, “SolarCity shares shed 7.4% to close at $24.72. Tesla shares closed down 2% at $230.01.”
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Just two days later, Tesla announced a $293.2-million loss for the second quarter of 2016, “the most recent in a string of quarterly losses was much worse than Wall Street expected for the company,” the Los Angeles Times reports.
Credit ratings agency Standard & Poors struck a further skeptical note, Reuters adds, putting “Tesla’s credit on CreditWatch with negative implications ‘to reflect the significant risks related to the sustainability of the company’s capital structure following the proposed transaction.’”
On Monday, as well, SolarCity cut its projections for 2016 installations by 10%, but asserted that it expects to see results improve with new battery and solar product offerings. Tesla said it anticipated savings from combining the two companies’ sales and marketing operations of $150 million in the merger’s first year.
The carmaker has weathered a succession of other negative headlines lately, related to a fatal accident involving one of its vehicles while it was in self-driving Autopilot mode.
Shrugging off the underwhelmed reaction from many observers to his recent moves, Musk—who is CEO of Tesla and chair of SolarCity’s board—appears to be actively seeking other opportunities to keep his companies’ names in the news.
On July 29, he officiated at the ribbon-cutting of Tesla’s massive battery “gigafactory” outside Reno, Nevada. Although still only one-fifth built, the US$5-billion facility “is critically important for the company,” Fortune reports. “The factory is expected to reduce the per-kilowatt-hour cost of Tesla lithium-ion battery packs by more than 30%, which will in turn drive down the cost for its electric vehicles. Without the factory, Tesla’s mass-market Model 3 won’t be possible—at least not for $35,000.” The company says the factory will begin churning out its first batteries by next year.
Musk’s public pronouncements also kept analysts at their keyboards. Equity forecasters were nonplussed by a statement that his full vision may require “tens of billions” in capital commitments. And the executive, frequently described as “visionary”, veered off into politics when he suggested that Libertarians should support a carbon tax because it would reduce the “pricing error” in the economy that results from the “unpriced externality” of climate damage from fossil fuels. The U.S. Libertarian Party, which has fielded a candidate for president, opposes a carbon tax.