Tesla Shares Hit Hard After Offer to Buy SolarCity
23 June 2016 - 2:30AM
Dow Jones News
Tesla Motors Inc. investors dumped shares a day after the
company unveiled a takeover offer for SolarCity Corp., fueling
doubts over Elon Musk's plan to combine the electric-car and
solar-energy companies he backs.
Tesla shares were off more than 8% in early trading Wednesday
before recovering slightly after the Silicon Valley electric-car
maker proposed an all-stock deal valuing SolarCity at up to $2.8
billion. Both companies are money-losing operations, with
SolarCity's stock especially hard hit over the past 12 months,
losing more than 60% of its value.
Wall Street analysts warned a Tesla takeover of SolarCity could
prove a distraction for the electric-car maker and worsen both
companies' strained finances.
Tesla, burning cash in a race to meet ambitious production
targets for a more affordable Model 3 electric car and build a
Nevada battery factory, isn't expected to be profitable until 2020
at the earliest. A deal could force the Palo Alto, Calif., auto
maker to once again seek cash with no guarantees that capital
markets will remain hospitable, analysts said.
SolarCity's shares, meanwhile, rose more than 8% in early
trading Wednesday in the hopes the deal could provide a lifeline to
the struggling San Mateo, Calif., solar-panel producer.
The early Tesla selloff augurs possible tough sledding for Mr.
Musk when shareholders vote on the takeover plan. Mr. Musk, the
chairman and largest shareholder at each company, has recused
himself from those votes and each board's consideration of the
deal. Mr. Musk and SolarCity Chief Executive Lydon Rive are
cousins.
"The market obviously hates this," said Shawn Kravetz, a fund
manager at Esplanade Capital in Boston who invests in solar
companies and until recently owned SolarCity shares. "There are
symbiotic relationships here, but cousins should not get
married."
Mr. Kravetz fears SolarCity shares could plunge even further if
the deal fails.
In addition to the familial ties, Mr. Musk has a history of
borrowing money and buying shares in both companies when they have
needed capital. Oppenheimer & Co. cut Tesla's rating to perform
from outperform and predicted the deal would face resistance.
"We expect a robust shareholder fight over this acquisition
centered on corporate governance," Oppenheimer analyst Colin Rusch
wrote in a note. "We believe investors are likely to view this
transaction as a bailout for [SolarCity] and a distraction to
[Tesla's] own production hurdles."
Barclays Capital said the deal would add another $2.6 billion in
debt to Tesla's balance sheet for a solar company with limited
synergies and uncertain growth and cash prospects.
"While no doubt the Tesla bulls will hail this combination as
visionary," the plan reinforces a negative view of Tesla, wrote
Barclays analyst Brian Johnson.
The takeover plan aims to create a company employing nearly
30,000 people with all products renamed "Tesla" that will package
electric cars, batteries and solar panels for customers, Mr. Musk
said.
A deal could energize SolarCity's ability to sell its rooftop
solar products by adopting the popular Tesla name, but at the same
time hurt Tesla's finances.
Mr. Musk owns about 23% of Tesla shares, and roughly 22% of
SolarCity. The next largest holder in Tesla is mutual-fund giant
Fidelity Investments.
SolarCity is burning cash and has borrowed money in the form of
solar bonds, most of which were purchased by Space Exploration
Technologies Corp., a private company that Mr. Musk also
controls.
Write to Mike Ramsey at michael.ramsey@wsj.com
(END) Dow Jones Newswires
June 22, 2016 12:15 ET (16:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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