SolarCity Corp (NASDAQ:SCTY) investors got wind of a letter from Tesla’s board of directors on an acquisition offer that could be worth as much as $2 billion. In this letter, the electric car manufacturer proposed an offer that equates share prices to a value between $26.50 to $28.50.
Tesla CEO Elon Musk is the chairman and largest shareholder of both companies and SolarCity Corp CEO Lyndon Rive is his cousin. Still, the decision will ultimately depend on the board of SolarCity Corp. According to a statement from Tesla, this deal should offer significant benefits to shareholders customers and employees since the combination would integrate their production, distribution, installation and marketing strategies. Tesla has a market cap of $32.7 billion and its shares fell 12% in after-hours trading.
If the deal pushes through, all products would fall under the Tesla brand because it is already wrapping up activities when it comes to battery storage. Meanwhile, SolarCity is constructing a factory for solar panels in South Buffalo, with the support of $750 million from New York state subsidies. Tesla is building a $5 billion battery factory in Nevada and has launched a sale to raise $1.7 billion in capital expenses.
This goes to show that even Tesla needs to raise additional funds for its own projects, with analysts speculating that the company isn’t set to be profitable until 2020. Because of that, many are skeptical that this deal would put Musk’s finances under much closer scrutiny. Elon Musk is also the largest shareholder of rocket maker SpaceX, which was the largest buyer of bonds offered by SolarCity.
I don’t think this creates additional financial risk for Tesla. It only amplifies the possibilities for both companies,” said Musk on the proposed takeover.
Some consider the offer a lifeline for SolarCity, which has seen stock price declines of 60% in the past 12 months. For the first quarter of the year, the company reported a net loss of $283 million.
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