Tesla’s Bid For SolarCity Gets Support From Shareholder Adviser
Posted on
2016-11-10 20:50:48
SAN FRANCISCO — Investors who are betting that Tesla Motors’ bid to buy the solar panel company SolarCity will succeed received encouragement on Friday after an influential shareholder adviser blessed the union of the two.
The advisory firm, Institutional Shareholder Services, said Teslashareholders should back the deal on three counts. The first is that buying SolarCity would help Elon Musk turn Tesla into a green energy company whose products would run from solar panels to electric cars.
I.S.S.’s second rationale is that the estimated $150 million in cost savings that would arise from a merger of the two could eventually yield $1.5 billion when capitalized, taking care of two-thirds of the purchase price.
The last is a starker calculation of dollars and cents: Tesla would be buying SolarCity at a cheap price.
Tesla has offered to pay 0.11 of a newly issued share in itself for each share of SolarCity, a bid valued at $20.99 as of Friday afternoon. That is lower than where SolarCity was trading this summer when Mr. Musk announced his deal intentions.
Mr. Musk has said that putting the two together is a “no-brainer” from a strategic standpoint. But critics have argued that the deal amounts to a bailout of SolarCity, whose fortunes and stock price have declined as the company has run up $3.1 billion in debt to support its business. Investors have also become pessimistic about the fate of independent solar companies. Competitors like SunEdison have filed for bankruptcy.
I.S.S. said Tesla, as a $30 billion company with no debt, should be able to support its corporate sibling, though at a potentially high financing cost.
The backing of I.S.S. could prove important to swaying Tesla shareholders, because the firm’s recommendations carry great weight among the big mutual funds that make up the electric carmaker’s independent shareholders.
It has always been assumed that SolarCity shareholders would back the deal, especially because advisers to the solar company’s independent directors tried and failed to solicit serious competing bids.
Shares of SolarCity rose 8.8 percent on Friday to close at $20.18. Shares of Tesla rose 1.7 percent to close at $190.56.
The advisory firm, Institutional Shareholder Services, said Teslashareholders should back the deal on three counts. The first is that buying SolarCity would help Elon Musk turn Tesla into a green energy company whose products would run from solar panels to electric cars.
I.S.S.’s second rationale is that the estimated $150 million in cost savings that would arise from a merger of the two could eventually yield $1.5 billion when capitalized, taking care of two-thirds of the purchase price.
The last is a starker calculation of dollars and cents: Tesla would be buying SolarCity at a cheap price.
Tesla has offered to pay 0.11 of a newly issued share in itself for each share of SolarCity, a bid valued at $20.99 as of Friday afternoon. That is lower than where SolarCity was trading this summer when Mr. Musk announced his deal intentions.
Mr. Musk has said that putting the two together is a “no-brainer” from a strategic standpoint. But critics have argued that the deal amounts to a bailout of SolarCity, whose fortunes and stock price have declined as the company has run up $3.1 billion in debt to support its business. Investors have also become pessimistic about the fate of independent solar companies. Competitors like SunEdison have filed for bankruptcy.
I.S.S. said Tesla, as a $30 billion company with no debt, should be able to support its corporate sibling, though at a potentially high financing cost.
The backing of I.S.S. could prove important to swaying Tesla shareholders, because the firm’s recommendations carry great weight among the big mutual funds that make up the electric carmaker’s independent shareholders.
It has always been assumed that SolarCity shareholders would back the deal, especially because advisers to the solar company’s independent directors tried and failed to solicit serious competing bids.
Shares of SolarCity rose 8.8 percent on Friday to close at $20.18. Shares of Tesla rose 1.7 percent to close at $190.56.