Tesla Motors (NASDAQ:TSLA) and SolarCity (NASDAQ:SCTY) jointly announced a $2.6 billion stock merger on Monday. Under the terms of the deal, SolarCity shareholders will receive 0.11 Tesla shares for each SolarCity share they own. The deal values each SolarCity share at $25.30, roughly 58 cents below where the shares ended trading on Monday. Elon Musk is the chairman of SolarCity and chief executive of Tesla Motors.
Tesla submitted a proposal to Lyndon Rive, the chief executive of SolarCity, to acquire the company June 20. That proposal had a higher exchange ratio for the shares than the agreement reached on Monday. Independent members of the Tesla and SolarCity boards conducted due diligence and sought the advice of financial and legal advisers to arrive at the agreed-upon price.
Musk must persuade the shareholders of the two companies that the deal is in the companies’ best interests. The transaction requires the approval of a majority of shareholders from both Tesla and SolarCity. Some analysts believe the valuation is excessive given the current prospects for the companies and the time horizon for those prospects to be realized.
Mr. Musk’s long-term vision is that Tesla’s batteries could store the power that SolarCity’s panels have harnessed. He wants Tesla to become more of a clean-energy company that also happens to sell cars. Mr. Musk said in a conference call with analysts, “That’s why we’re all doing this — is to try to accelerate the advent of a sustainable-energy world.” However, most analysts agree that achieving this vision could take years, or maybe even decades.
Federal regulators and Congress are questioning Tesla about its Autopilot assisted-driving system. The Autopilot system includes assisted steering, adaptive cruise control, collision avoidance and emergency braking. A driver was using the Autopilot system in a Model S when it crashed into the side of a tractor-trailer in Florida on May 7. The driver was killed in the incident, becoming the first known fatality in a computer technology driven vehicle.
The National Highway Traffic Safety Administration sent a set of detailed questions about the accident to Tesla and expects an answer by late August. The National Transportation Safety Board and the Senate Commerce Committee are also investigating the incident. The safety investigations may be a distraction for Mr. Musk as he tries to win over investors for the SolarCity deal.