Tesla Finalizes $2.6 Billion Acquisition of SolarCity

On Sunday, high-end electric vehicle manufacturer Tesla Motors announced the final terms of its acquisition of SolarCity.

In a deal that will cost Tesla approximately $2.6 billion, SolarCity shareholders will receive 0.11 shares of Tesla stock for each share of the San Mateo-based solar power systems provider. That value equates to approximately $25.80 a share based on Tesla’s stock price at last Friday’s closing.

Some investors aren't sure that this new entity can actually become profitable. And this reflected in the markets. Shares of Tesla and SolarCity initially dropped after the announcement, but have since climbed upward as investors appeared to become more comfortable with the acquisition.

The acquisition, if approved by the shareholders of both companies, would create a clean-energy, transportation and energy-storage company with a unique yet untested business model.

First announced in June, this deal was applauded by many within the clean technology field and panned by many Wall Street analysts. Forbes, for example, described the deal as Tesla shareholders offering a “bailout” for SolarCity’s investors.

But a Tesla blog post announcing the deal on Monday infers that Wall Street should actually welcome this deal. Tesla’s executives expect the deal to save the newly-combined company an estimated $150 million a year in “cost synergies” after the transaction closes. With a bevy of clean technologies under its roof, Tesla also expects to save potential customers money with more efficient hardware and manufacturing costs.

Furthermore, Tesla argues that its retail network of 190 stores will make this new company’s solar power and energy-storage systems more accessible to the public. Despite its growth over the last several years, solar power is still an unfamiliar technology to many consumers (despite the constant telemarketing calls you may receive at your home). And many people still have a nebulous understanding of what energy storage is, how it works and how it can benefit them.

Tesla’s extensive reach offers this newly-formed company opportunities available to no other solar installer or battery-storage startup company. Of course, this new set-up will only thrive if Tesla can meet demand.

Typical of most acquisitions, SolarCity established a “go-shop” provision. This allows SolarCity and its officers to solicit or entertain offers from other firms interested in acquiring the company. SolarCity has also agreed to pay a $78 million termination fee in the event the merger is not finalized by mid-April 2017.

Meanwhile, Elon Musk -- who is CEO of Tesla and chairs SolarCity’s board of directors -- recused himself of voting on the merger.

This new company will be a brave new world for Musk. The future is uncertain for employees at SolarCity and Tesla as well due to what the Los Angeles Times describes as an "audacious" risk. And the Wall Street Journal assessed this deal as a gamble for what will be the employer for 30,000 employees -- that is, if it even goes through.

Image credit: Mike Mozart/Flickr