Tesla and SolarCity agree to $2.6bn buyout

Tesla Motors and SolarCity reached a deal for the electric-vehicle maker to buy the largest US rooftop solar installer for about $2.6bn, with shareholders to get the final say later this year.

Independent board members at both companies approved an all-stock offer of 0.11 shares of Tesla for each share of SolarCity, worth $25.83 per SolarCity share at Friday’s closing prices.

While many analysts had come round to the belief that the deal would go ahead, a good number of them had expected SolarCity's board to hold out for a sweeter offer.

Shares of SolarCity, the largest employer in the US solar industry, started the year around $50, and were worth more than $80 as recently as 2014.

The shares have been under heavy pressure over the past year, hit by a range of factors that includes concerns about the company’s ability to transition from loss-making growth to steady profits; the impact higher interest rates could have on its business; the net metering battles for distributed solar that have flared up across the US; depressed energy prices generally; and the high-profile bankruptcy of SunEdison.

Separately on 1 August, SolarCity lowered its full-year installation guidance to 900-1,000MW from its previous guidance of 1,000-1,100MW, acknowledging that bookings were “lower than anticipated” in the first half of the year.

Many analysts and shareholders remain sceptical of the deal given that both companies continue to make large losses and will need to raise substantial amounts of capital in the coming years to keep their plans on track.

But Elon Musk, the largest shareholder of both Tesla and SolarCity, argues that they will better off under the same roof, where they can offer customers a seamless electric-vehicle/solar/storage product suite. 

In addition to its car business, Tesla is making a major push into the small but rapidly growing market for stationary storage, with SolarCity already acting as one sales outlet for its Powerwall home battery systems.

SolarCity, meanwhile, recently diversified into building small utility-scale solar projects, and is showing a greater willingness to cooperate with traditional power utilities.

Tesla officially opened its Gigafactory for lithium-ion batteries in Nevada last week, and SolarCity is building its own solar panel Gigafactory in upstate New York.

In an investor presentation issued on 1 August, Tesla said it expects to realise $150m of cost synergies in the first year after buying SolarCity, based on sales and marketing efficiencies and corporate savings. The company envisages selling solar systems alongside its electric vehicles.

The companies expect to drive revenue growth through “new product development”, Tesla says.

Musk, who has recused himself from voting on the deal, expects the acquisition to close in the fourth quarter of 2016.

In the meantime, SolarCity has a 45-day period to solicit alternative proposals.