Published: Wed, August 03, 2016
Research | By Jennifer Evans

Tesla to merge with solar power company SolarCity

As a combined company, each business unit will work together to create fully-integrated solar power and battery-storage products for residential homes and commercial businesses, as well as full-scale grid projects.

Musk and sources familiar with the situation have said they are confident the deal will win needed support.

Elon Musk is moving closer to his vision for a "one-stop solar and storage experience", with the announcement that his company Tesla is set to buy solar panel manufacturer SolarCity. Tesla has lost $1.2 billion in the past two years alone while SolarCity has suffered losses exceeding $1.1 billion during the same span. Analysts surveyed by FactSet are predicting a 416 million loss from Tesla this year while they believe SolarCity will lose $851 million.

Compared to one year ago, Tesla's offer represented little more than half of SolarCity's value, a tumble showing the solar company's slow growth, the complexity of its financial structure and increased scrutiny of its dependence on government incentives.

Tesla Motors and SolarCity have confirmed a $2.6bn all-stock transaction that will see the electric automaker and solar panel manufacturer merge. Tesla also would give SolarCity access to worldwide customers.

Daniel Marcus, principal of Marcus Capital LLC, a Chicago investment adviser which owned 22,100 Tesla shares at the end of June, said he supports the takeover bid and Musk's long-range plan. Shares of Tesla and SolarCity were both down slightly in trading today.

This deal requires approval of the disinterested shareholders of both companies, as well as regulatory approval.

S&P Global raised its target price for SolarCity shares to $26 but reiterated its "sell" opinion on Tesla shares Monday, saying the deal benefits SolarCity more than Tesla.

That leaves two people on both the SolarCity and Tesla boards who you could point to as "neutral" parties.

"Tesla Motors Inc. needs to concentrate on manufacturing quality vehicles, delivering on its growing list of promises, keeping its existing customers happy, and generating profits - it's failing on all accounts", said Mike Harley, an analyst with the Kelley Blue Book auto information service, in an emailed statement.

The deal also includes a 45 day period "go-shop" provision, which will allow SolarCity to solicit from alternative proposals during the time period. Tesla previously said it would offer $23.56 to $25.30 per SolarCity share.

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