Tesla Motors tables $2.79bn offer for SolarCity

Billionaire Elon Musk’s Tesla Motors on Tuesday offered to buy SolarCity, the largest US rooftop solar installer, in a deal worth about $2.79bn that aims to create the only “vertically integrated energy company offering end-to-end clean energy products.”

Those products would include electric automobiles, battery storage and solar panels for the commercial and residential markets.

Tesla, an electric car manufacturer, says it intends to offer $26.50 to $28.50 per share for SolarCity shares, or a premium of roughly 21% to 30% above the closing SolarCity price of $21.19 in New York on Tuesday.

Tesla will finance the deal through the issuance of stock. It requires approval from shareholders in both companies.

Tesla is the far larger company with $32.7bn market capitalization around 15 times that of SolarCity.

Tesla shareholders reacted negatively to the proposed transaction, with shares plunging 12.23% to $192.75 in after-hours trading.

In contrast, SolarCity shares rose 14.72% to $24.31 per share, still less than half its one-year high of $57.26.

On a conference call, Musk was enthusiastic about the proposed transaction. "In my personal opinion, this is obviously something that should happen," he said.

Neither Tesla or SolarCity have been profitable under Musk, the entrepreneur who is both the chairman and leading shareholder of both companies.

Musk has captivated investors this decade as a visionary with leading-edge products and what they perceive as his uncanny ability to spot economic value and the next big opportunities before others can.

His critics say his best skills are political.

They cite his ability to persuade state officials to ante up hundreds of millions of dollars in public funds to help underwrite the cost of his grandiose projects. These include a $5bn battery plant in Nevada and a $900m "giga-factory" that will make solar panels in economically depressed western New York State.

Musk is also chief executive of Space Exploration Technologies, a high-profile manufacturer of space-launch rockets,

Single entity vision

"Tesla’s mission has always been tied to sustainability. We seek to accelerate the world’s transition to sustainable transportation by offering increasingly affordable electric vehicles," the company says in a blog post.

"And in March 2015, we launched Tesla Energy, which through the Powerwall and Powerpack allow homeowners, business owners and utilities to benefit from renewable energy storage."

"It’s now time to complete the picture. Tesla customers can drive clean cars and they can use our battery packs to help consume energy more efficiently, but they still need access to the most sustainable energy source that’s available: the sun," the post adds.

The two firms have been stepping up cooperation over the last year or two. For example, Tesla is supplying batteries to SolarCity for a PV array project in Hawaii.

Tesla's board also sees the proposed acqusition as enabling both firms to maximize and build on the core competencies of each company.

For example, Tesla’s experience in design, engineering, and manufacturing should help continue to advance solar panel technology, including by making solar panels add to the look of lessees' homes.

Similarly, the board believes that SolarCity’s wide network of sales and distribution channels and expertise in offering customer-friendly financing products would significantly benefit Tesla and its customers.

"We would be able to provide the best possible installation service for all of our clean energy products. SolarCity is the best at installing solar panel systems, and that expertise translates seamlessly to the installation of Powerwalls and charging systems for Tesla vehicles," it claims.

In a letter to SolarCity chief executive Lyndon Rive, who is his cousin – their mothers are twin sisters – Musk says he has recused himself from voting on the transaction when it was initially approved by Tesla’s board and will do the same if the SolarCity board brings the issue to a vote.

According to Tesla, a majority of “disinterested stockholders” of both firms will need to approve the deal.