August 1, 2016 – SolarCity’s board of directors agreed to Tesla’s offer to acquire the solar company in a stock-for-stock exchange of $2.6 billion, $200 million less than the initial offer made in June. The new entity could “create the world’s only integrated sustainable energy company.”
Although the companies’ decision-makers are on board, stockholders in both corporations will have to approve the merger. To avoid a conflict of interest, Elon Musk – founder and largest stockholder in both companies – and affiliated directors refrained from voting on the decision.
The merger is intended to “improve the way that energy is generated, stored and consumed.” Tesla, primarily known for its electric vehicles, plans to increase circulation of its energy storage products – the Powerwall and Powerpack – which they plan to promote alongside solar energy products offered by SolarCity, America’s largest rooftop solar provider.
The two companies anticipate the transition will offer consumers better energy solutions by “lowering hardware costs, reducing installation costs, improving… manufacturing efficiency and reducing…customer acquisition costs,” SolarCity stated in a blog post.
They also speculate stockholders will benefit from an estimated $150 million in “synergies” created by the merger within the first year.
Some interested parties are skeptical of the deal and both SolarCity and Tesla’s stock price dropped after the boards announced their decision.
Skeptics argue that neither SolarCity nor Tesla are making profits, SolarCity has acquired over $3 billion in debt largely due to its zero-down lease structure, renewable energy subsidies are waning and the solar company recently projected lower than previously expected installation rates in the coming year.
Some major institutional investors – including manager at Fidelity and Marcus Capital LLC – support the merger.
SolarCity has been given 45 days to “go shop” for a better offer; however, both companies filed paperwork with the Securities Exchange Commission (SEC) to move forward with the project.
Musk is confident that the transaction will be approved and claims the merger is critical to both companies’ expansion and the progression of sustainable energy and transportation.