The American electric automotive and energy storage company, Tesla Incorporated has announced that it has reached a deal to take over the solar energy company, SolarCity for a price of $2.6 Billion.
According to the innovative Chief Executive Officer of Tesla, Elon Musk, the acquisition of SolarCity is meant to strengthen the balance sheet of the two companies, allowing them to build an integrated product that combines electric vehicle charging, solar power, energy storage, installation and servicing of the whole system, creating a renewable energy boom. The deal was agreed on Monday August 1st, 2016.
Already, Mr Musk is serving as the chairman of SolarCity’s board. He also has family ties with the Chief Executive Officer of SolarCity, Lyndon Rive. Some critics of the takeover said a conflict of interest might have occurred during the negotiations stage, due to the close ties of Musk with SolarCity. Tesla is a public company, who trades on the National Association of Securities Dealers Automated Quotations under the symbol TSLA.
But Musk revealed to Ars Technica that he had been rescued from the financial calculations, which determined the amount of stock Tesla paid for SolarCity. He said the solar company would be obligated to accept the best deal for its shareholders, even if that deal was not with Tesla.
According to Musk, if the two companies do not merge, but decide to pursue their visions on producing renewable energy and how to store it, it would be very difficult. He said he strongly believes that the merger is the best option for the two companies to be able to create a renewable energy that could be stored at the same time.
Musk also said Tesla’s quest to increase renewable energy production is due to the rising level of energy demand around the world. He said: “As transport becomes electric, as heating becomes electric, the demand for electricity is going to increase”. Mr Musk added that his company’s manufacturing experience will serve as an advantage to SolarCity’s shareholders, saying the deal is the best for them.
Financial analysts say per the terms of the agreement, SolarCity now has 45 days to shop for a better offer before the two companies formally present their merger intentions to shareholders and the Securities and Exchange Commission of the United States.
The Wall Street Journal reports that Tesla will buy SolarCity in an all-stock deal that would give 0.11 shares of Tesla stock to investors for every share of SolarCity stock they own. The Journal also confirms that the deal is worth $2.6 billion.
Tesla later revealed more details of the deal in a press statement. The company said the merger could generate about $150 million in cost synergies in the first full year, after the deal closes. Cost synergy, in the context of company merger, is the savings in operating costs expected after the two companies have come together.
Both executives of Tesla and SolarCity said in the statement that the expected synergies would come from decreased marketing expenses and the ability to leverage Tesla’s retail footprint by selling SolarCity panels in Tesla stores, as well as reducing the cost to service customers by consolidating service visits.
Currently, SolarCity is in the process of building a $750 million solar panel factory in the city of Buffalo, New York. The factory is expected to be completed in 2017. Tesla is speeding up process to complete its Gigafactory in Neveda, which will be capable of delivering up to 150 gigawatt hours of battery storage per year. This project is expected to be completed in 2020. Already, Tesla has completed the manufacturing of batteries that are capable of storing energy for future use.
Renewable energy advocates have praised the deal between the two companies, saying it has added momentum in the drive to obtain clean and cheap energy in the future.
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