SolarCity (SCTY) to be acquired by Tesla (TSLA)

• Tesla's bailout of Elon Musk cousin's company, SolarCity.

    

SolarCity (SCTY): Elon Musk proposes combining his electric-car Tesla Motors (TSLA) and solar-power companies in a potential $2.8 billion deal. (6/21/16)

Elon Musk proposed combining his electric-car and solar-energy companies, in a bold effort to consolidate his holdings and offer widespread clean-energy products from vehicles to power in homes.

Tesla Motors Inc., Mr. Musk’s Palo Alto, Calif., electric-car company, on Tuesday offered to acquire SolarCity Corp. in a stock deal valuing it at up to $2.8 billion. Mr. Musk is the chairman and largest shareholder of both companies.

Tesla in a letter to SolarCity’s chief executive said its offer represented a value of $26.50 to $28.50 a share, or a premium of roughly 21% to 30% over SolarCity’s Tuesday closing price of $21.19.

***** The following day / reaction:

To many, the buyout looked like a bailout of one Musk company for another. SolarCity has more than $3 billion in debt and Goldman Sachs claims it is very close to breaching its loan covenants.

Corporate governance questions are being raised because Musk owns 21.1% of Tesla and 22.5% of SolarCity. And two Musk cousins are the CEO and CTO of SolarCity. In addition, only two of Tesla's directors have no ties to SolarCity and only one SolarCity director has no ties to Tesla.

Another factor raising eyebrows is the fact that Elon Musk has pledged four million of his 22 million SolarCity shares as collateral against his personal borrowings from Morgan Stanley.

SolarCity shares have plunged this year. Was Musk near getting a margin call? That's a very legitimate question many are asking.

For his part, Musk called the deal a “no-brainer.” He sees it as the next logical step in his vision of the future of sustainable energy and transportation. The newly-merged firm would be an “integrated sustainable energy company” that would become the first company with a trillion dollar valuation, says Musk.

One thing is certain. Existing Tesla shareholders will see their stake further diluted as Tesla will issue another $2.5 billion in stock in order to buy SolarCity. Tesla is offering between 0.122 and 0.131 of its shares for each share of SolarCity.

If one includes the stock offering in May, Tesla's existing shareholders are seeing nearly a 14% dilution of their shares in just a few short months.