Tesla, So­larCity get ap­proval for merger

Kuwait Times - - TECHNOLOGY -

NEW YORK: Tesla Mo­tors got ap­proval from in­vestors to com­bine with So­larCity Corp. in an ef­fort to ex­pand the mar­ket for so­lar power and give elec­tric car own­ers new op­tions for so­lar charg­ing. Share­hold­ers of both com­pa­nies backed the merger by a wide mar­gin Thurs­day. Tesla said 85 per­cent of share­hold­ers who voted ap­proved the deal.

The deal, first pro­posed by Tesla CEO Elon Musk pro­posed in June, has had more of a mixed re­ac­tion on Wall Street. An­a­lysts won­dered why Tesla would want to take on So­larCity while it’s build­ing a big bat­tery fac­tory in Ne­vada and pre­par­ing to launch its first mass-mar­ket car, the Model 3, due out at the end of 2017. Shares of both com­pa­nies dropped in the en­su­ing months.

There were also com­plaints of a con­flict of in­ter­est for Musk. He is the chair­man of both com­pa­nies, and So­larCity is run by his cousins. But Musk con­vinced share­hold­ers that the deal was, as he orig­i­nally stated, “a no-brainer.” Ear­lier this month, he said So­larCity - the largest home so­lar panel in­staller in the US - could add $1 bil­lion in rev­enue to the com­bined com­pany next year and could add $500 mil­lion in cash to Tesla’s cof­fers over three years.

And at a big party in Hol­ly­wood, he un­veiled what he hoped would be the com­bined com­pa­nies’ first prod­uct: glass so­lar roof pan­els that look like tra­di­tional roof tiles. “I think your faith will be re­warded,” Musk told share­hold­ers Thurs­day. He said the so­lar roof tiles would be ready for in­stal­la­tion in large vol­umes by next sum­mer.

The all-stock deal was worth $2.6 bil­lion when the com­pa­nies ap­proved it in Au­gust, but the final terms will be de­ter­mined by the value of Tesla shares on the day the merger goes into ef­fect. So­larCity said it ex­pects the deal to close in the com­ing days.

Tesla shares rose 2.6 per­cent to close at $188.66 Thurs­day. That’s down from $219.61 on June 21, the day be­fore the merger was pro­posed. So­larCity shares rose 2.9 per­cent to $20.40, down from $26.40 in June.

Musk and two other Tesla di­rec­tors who sit on So­larCity’s board re­cused them­selves from the vote, but that didn’t stop some share­hold­ers from su­ing. They claim the merger is an at­tempt to use one com­pany to bail out an­other. Musk owns 22 per­cent of both com­pa­nies. Nei­ther com­pany has achieved sus­tained prof­itabil­ity, and both op­er­ate in markets where de­mand is un­cer­tain. Plug-in elec­tric ve­hi­cles make up less than 1 per­cent of US sales, and less than 1 per­cent of US elec­tric­ity gen­er­a­tion comes from so­lar power, ac­cord­ing to gov­ern­ment data.

Tesla posted a net profit of $22 mil­lion in the third quar­ter, its first quar­terly profit in three years. So­larCity re­ported a third-quar­ter loss of $225.3 mil­lion.

Efraim Levy, an equity an­a­lyst at CFRA Re­search, was among those against the deal be­cause it could dis­tract Tesla’s man­age­ment and in­crease the com­pany’s need to raise cash next year. He has a “hold” rat­ing on Tesla’s stock. “Elon Musk is clearly a force for change, but we think TSLA share­hold­ers will see re­wards de­layed,” Levy wrote in a note to clients. Down the road, Levy said, there are some po­ten­tial up­sides. Tesla and So­larCity have said they could save $150 mil­lion in the first full year thanks to re­duced mar­ket­ing costs and other syn­er­gies. Levy said the deal could also re­duce the cost of fi­nanc­ing for So­larCity.


FRE­MONT, Cal­i­for­nia: In this Sept. 29, 2015, file photo, Elon Musk, CEO of Tesla Mo­tors Inc., talks about the Model X car at the com­pany’s head­quar­ters.

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