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Tesla Motors and SolarCity Reach Deal to Merge

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Elon Musk is the chairman of SolarCity and chief executive of Tesla Motors. Credit Rashid Abbasi/Reuters

Elon Musk took another step in combining his electric-car company with his solar-energy company, announcing on Monday that the two had reached a $ 2.6 billion agreement.

Independent members of both boards approved a deal in which the car company, Tesla Motors, will acquire SolarCity for stock, valued about $ 2.6 billion based on last week’s average price, a Tesla blog post said. SolarCity shareholders would receive 0.11 Tesla shares for each SolarCity share they own.

As Monday’s statement notes, however, “it isn’t the finish line,” as the deal still requires approval by a majority of shareholders not including Mr. Musk, who is the largest investor at both companies.

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When the news of Tesla’s proposal to acquire SolarCity was announced in June, the stock price of Tesla plummeted, although it has since rebounded. Additionally, SolarCity is able to solicit other buyers over the next 45 days, through Sept. 14, to see whether any other bidder can top Tesla’s offer.

The deal raised eyebrows across Wall Street over the potential conflicts of interest in combining companies largely controlled by Mr. Musk. At Tesla, he is the chief executive, and at SolarCity, he is the chairman. The deal could help shore up SolarCity, which has struggled under a huge debt and widening losses.

The two companies see the deal as merging one company that stores energy (Tesla) with another that focuses on harnessing solar energy (SolarCity).

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SolarCity workers installing solar panels at a home in Camarillo, Calif., in 2014. Credit J. Emilio Flores for The New York Times

“By joining forces, we can operate more efficiently and fully integrate our products, while providing customers with an aesthetically beautiful and simple one-stop solar and storage experience: one installation, one service contract, one phone app,” the Tesla blog post said.

The companies plan to cut about $ 150 million in costs through the transaction in the first full year after the deal closes. They expect customers to benefit through lower hardware and installation costs, and plan to use Tesla’s 190 stores to expand SolarCity’s reach.

Evercore provided financial advice to Tesla, while Lazard advised the special committee of SolarCity’s board. On the legal side, Wachtell, Lipton, Rosen & Katz counseled Tesla, while Skadden, Arps, Slate, Meagher & Flom worked with SolarCity’s independent directors.

In addition to shareholder approval, both companies must receive regulatory approval. If they obtain all necessary closing conditions, the deal is expected to be completed by the end of the year.

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