Tesla Motors makes offer to acquire SolarCity, Board of Directors write 'open letter'

Wednesday June 22, 2016 , 6 min Read

Elon Musk's Tesla Motors announced on Wednesday that the company's Board of Directors had made an acquisition offer to solar energy service provider SolarCity. Tesla believes that a combination of both companies would provide significant benefits to their shareholders, customers and employees.

Story so far

Currently run by CEO Elon, Tesla Motors seeks to accelerate the world’s transition to sustainable transportation through electric vehicles. Tesla has tasted success with its vehicles Roadster, Model S and Model X and is currently in the process of manufacturing Model 3, its first 'mass market' electric vehicle.

Tesla notes that their mission has always been tied to sustainability, and so in March 2015, it launched Tesla Energy, which, through the Powerwall and Powerpack, allow homeowners, business owners and utilities to benefit from renewable energy storage.

Tesla customers can drive clean cars and they can use our battery packs to help consume energy more efficiently, but they still need access to the most sustainable energy source that’s available: the sun.

Founded in 2006 by brother duo Lyndon Rive and Peter Rive, SolarCity is a leading provider of solar energy services to residential, commercial and industrial markets and non-profit organisations. The company filed for an IPO on the NASDAQ exchange in 2012 with a market cap of around $600 million.

Having worked closely with SolarCity through partnerships (SolarCity uses Tesla battery packs as part of its solar projects) on a variety of use cases, Tesla Motors believes that an acquisition would make great sense, given that both companies have great cultural fit and other synergies. Tesla also listed down a few other reasons-

Close the loop as a end-to-end clean energy company

The company says that post acquisition, the combined entity would be the world’s only vertically integrated energy company offering end-to-end clean energy products to customers. This would start with the car that their customers drive and the energy that they use to charge it, and would extend to how everything else in their homes or businesses is powered.

With your Model S, Model X, or Model 3, your solar panel system, and your Powerwall all in place, you would be able to deploy and consume energy in the most efficient and sustainable way possible, lowering your costs and minimising your dependence on fossil fuels and the grid, it notes.

1 + 1 =3

Tesla believes that their combined strengths would help both companies expand their addressable market, further than either company could do separately. "Because of the shared ideals of the companies and our customers, those who are interested in buying Tesla vehicles or Powerwalls are naturally interested in going solar, and the reverse is true as well," it adds.

Technological synergies

With the acquisition, Tesla explains that they would be able to maximise and build on the core competencies of each company. Tesla’s experience in design, engineering, and manufacturing should help continue to advance solar panel technology. Similarly, SolarCity’s wide network of sales and distribution channels and expertise in offering customer-friendly financing products would significantly benefit Tesla and its customers.

Tesla further confirmed its keen interest in the acquisition by also making the letter their Board of Directors had sent to SolarCity CEO Lyndon public on its blog. The company has promised to provide further updates if and when an agreement is reached.

It is also worth noting that since Elon is the Chairman and principal shareholder of SolarCity and Antonio J. Gracias, the CEO of Valor Management Corp is also among the Board of Directors at SolarCity and had overlapping directorships (Tesla and SolarCity), the two of them had recused themselves from voting on this proposal at the Tesla board meeting.

A copy of Tesla’s offer letter is provided below:

June 20, 2016

Mr. Lyndon R. Rive

Chief Executive Officer

SolarCity Corporation

3055 Clearview Way

San Mateo, CA 94402

Dear Lyndon:

We are pleased to submit to you and the SolarCity board of directors a proposal to acquire all of the outstanding shares of common stock of SolarCity in exchange for Tesla common shares. Subject to completing due diligence, we propose an exchange ratio of 0.122x to 0.131x shares of Tesla common stock for each share of SolarCity common stock. This proposal represents a value of $26.50 to $28.50 per share, or a premium of approximately 21% to 30% over the closing price of SolarCity’s shares, based on today’s closing price of SolarCity’s shares and the 5-day volume weighted average price of Tesla shares. We believe that our proposal offers fair and compelling value for SolarCity and its stockholders, while also giving SolarCity’s stockholders the opportunity to receive Tesla common stock at a premium exchange ratio and the opportunity to participate in the success of the combined company through their ongoing ownership of Tesla stock.

The board of directors of Tesla is excited at the prospect of a potential combination of SolarCity’s business with Tesla. We believe that the possibilities for product, service and operational synergies would be substantial, and that a combination would allow our companies to build on our respective core competencies and remain at the forefront of delivering innovative approaches for sustainable transportation and energy. We believe that a combination would generate significant benefits for stockholders, customers and employees of both Tesla and SolarCity.

We are committed to a possible transaction that is fair to SolarCity’s and Tesla’s respective stockholders. To help ensure that, Tesla is prepared to make the consummation of a combination of our companies subject to the approval of a majority of disinterested stockholders of both SolarCity and Tesla voting on the transaction. In addition, as a result of their overlapping directorships, Elon Musk and Antonio Gracias have recused themselves from voting on this proposal at the Tesla board meeting at which it was approved, and will recuse themselves from voting on this proposal at the SolarCity board as well. We believe that any transaction should be the result of full and fair deliberation and negotiation by both of our boards and the fully-informed consideration of our respective stockholders.

Our proposal is subject to the satisfactory completion of due diligence, the negotiation of mutually agreeable definitive transaction documents, and final approval by the Tesla board. While a transaction would be further subject to customary and usual closing conditions, we believe that Tesla is well positioned to negotiate and complete the transaction in an expedited manner. We do not anticipate significant regulatory or other obstacles in consummating a mutually beneficial transaction promptly.

In light of Elon Musk’s SEC disclosure obligations in his individual capacity as a stockholder of SolarCity this proposal will be publicly disclosed, but Tesla’s intention is to proceed only on a friendly basis.

We look forward to discussing a potential transaction with you, and hope to expeditiously enter into a definitive agreement.

Sincerely,

The Board of Directors of

Tesla Motors, Inc.

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