Elon Musk defended his proposed marriage of Tesla Motors Inc. and SolarCity Corp. with a second conference call in about 14 hours to assure investors his $2.86 billion plan to combine the companies is a “no brainer” that would benefit both.
“From my standpoint this makes Tesla’s future execution easier, not harder,” said Musk on Wednesday. “Itap increasingly unwieldy to work with SolarCity at an arm’s length basis.”
But Tesla investors haven’t embraced the news. The shares opened Wednesday down 9.8 percent to $198.13 at 9:31 a.m. New York time after falling as much as 14 percent in extended trading Tuesday. In a sign of skepticism for the deal, SolarCity shares rose 7.5 percent to $22.77 at 9:55 a.m., well below the range of $26.50 to $28.50 Musk said Tesla would likely pay.
Analysts raised concerns about management focus, the solar company’s debt and corporate governance issues between the two businesses that share the same chairman and largest shareholder — Musk, who is also chief executive of the electric-car company.
Oppenheimer & Co. analysts including Colin Rusch downgraded Tesla to perform from outperform in a research note published late Tuesday, saying they expect “a robust shareholder fight over this acquisition centered on corporate governance.”
“We believe investors are likely to view this transaction as a bailout for SCTY and a distraction to Tesla’s own production hurdles,” Rusch said in the note.
Although itap unusual to announce a proposed acquisition rather than a definitive agreement, Musk’s holdings in the two companies required him to keep the market informed, which benefits other shareholders, said Todd Maron, Tesla’s general counsel, on Wednesday’s call.
“The result of this is that this is actually a more transparent process because you’re essentially seeing behind the curtains more than you would ordinarily see in a transaction,” he said.
Credit Suisse Group AG analysts including Patrick Jobin said in a separate note that they expect “resistance from Tesla shareholders” and warned of “many corporate governance challenges.”
“Investors expect Tesla to keep all its focus on completing the gigafactory and on quickly ramping up production of Model 3 in 2018,” said Salim Morsy, an analyst with Bloomberg New Energy Finance. “Both of these goals are existential for Tesla. A SolarCity acquisition doesn’t help execute these critical milestones.”
But the billionaire was upbeat on Tuesday’s conference call. “In my personal opinion, this is obviously something that should happen,” Musk said.
Tesla announced its bid for SolarCity in a blog post, saying the acquisition would “complete the picture.” The move comes as Tesla finishes construction of its battery-manufacturing gigafactory east of Reno, Nev., and , its more affordable electric car, late next year. Musk has said he wants to build 500,000 cars a year by 2018, two years sooner than originally planned.
If the deal is approved, SolarCity would become a unit of Tesla. Itap already part of the family: SolarCity CEO Lyndon Rive and co-founder and chief technology officer Peter Rive are Musk’s first cousins. The three of them hatched the idea for SolarCity during a trip to the Burning Man arts festival in the Nevada desert more than a decade ago.
According to Tesla, the all-stock deal is worth $26.50 to $28.50 for each SolarCity share. That calculates to a premium of as much as 35 percent from Tuesday’s closing price. The average 12-month price target among analysts surveyed by Bloomberg is $29.82. SolarCity rose 16 percent to $24.61 and Tesla sank 10 percent to $196.85 at 6:20 a.m. New York time.
