Musk’s cozy cuz tie-up talk raises eyebrows

It was February when Elon Musk suggested to his cousin that they merge the companies they run — Tesla Motors and SolarCity — three months before the electric-car maker sold $1.4 billion in stock in a secondary offering and four months before Musk made a marriage proposal public.

Musk, Tesla’s chief executive officer and SolarCity’s chairman and largest shareholder, had the discussion with his cousin, SolarCity Chief Executive Lyndon Rive, sometime before Feb. 29 when Tesla’s board was briefed on the idea, which it turned down at the time, according to a document filed Wednesday with the Securities and Exchange Commission.

That means that Musk and Tesla’s board had considered a merger before its May stock offering without disclosing it to potential buyers of the new shares. The merger has been controversial among Tesla shareholders, some of whom have opposed the deal and sold the stock when it was announced in June.

Tesla shares fell more than 10 percent on June 22, the first trading day after the merger proposal was announced. The company declined to comment beyond the filing.

Some shareholders and analysts have questioned the deal because Musk owns more than 20 percent of each company. SolarCity has struggled financially and some analysts have said that its cash burn could be a problem for Tesla, which also needs money to develop new cars like the Model 3 sedan, which is supposed to begin full production in mid-2017. Tesla in the filing reiterated plans to raise more capital this year.

The filing doesn’t specify if the conversation was before or after Musk’s Feb. 12 purchase of almost 570,000 shares of SolarCity for an average price of about $17.56 apiece, which brought his holdings to about 21.8 million shares.

SolarCity stock was off 3 cents, to $20.66, and Tesla gained 67 cents, to $212.01, on Wednesday.