Given the synergies of both companies, Elon Musk has described the deal as a “no brainer”.
Tesla Motors Inc. has disclosed that its acquisition of SolarCity Corp will add $500 million in cash to its balance sheet over the next three years and contribute more than $1 billion in revenues in 2017.
Tesla’s shares fell by 2% in after-hours trading, having tumbled an additional 4% in afternoon trade, to close at $197.73. SolarCity’s shares also fell by 3.5% having fallen by 2.7% during regular trading hours and have come to rest at $19.07. After the announcement of its intent to acquire SolarCity, Tesla’s shares have fallen by 10%.
In order to convince skeptics on the on shareholder’s value provided by this deal Tesla posted an 8-page document on its blog.
Its board is set for a vote on the deal on November 17. Elon Musk, Tesla Motor’s CEO, has described the acquisition as a “no brainer.”
Tesla’s 8-page document pitches the deal as Tesla’s efforts to combat the “catastrophic impact” of greenhouse gases on the environment. The deal will help accelerate the transition to clean energy.
“The acquisition will enable us to transform into a truly integrated sustainable energy company,” reads the letter.
Critics of the deal have said the merger is short on synergies and only amounts to Tesla bailing out a loss-making SolarCity.
Highlighted in the document was SolarCity’s GAAP revenue and profitability forecast which relied more on purchases than on leasing.
Tesla Motors has also disclosed, SolarCity’s has registered a one-third jump in bookings in September, which is a four-fold jump improvement over the first quarter since fewer leases would create “a healthier mix of upfront and recurring revenue,” said Tesla Motors.
SolarCity has piled up $6.34 billion in liabilities, including debt. It is the biggest player in the U.S. residential solar market and over the course of the past 5 years, it has expanded dramatically by leaning heavily on borrowings to help finance its “no-money-down” residential solar installations.
Tesla has underlined the merits of the deal saying the combined entity could generate as much as $150 million in cost saving in the first full year alone.
Furthermore, with SolarCity having an installed customer base of 300,000 and with Tesla Motors having 180,000 car owner, the potential for synergies is massive due to cross-sell services.
“It’s a massive upsell opportunity,” said Peter Rive, SolarCity’s co-founder and Chief Technology Officer. “It’s a very simple retrofit procedure to go back to the customers and upsell them.”
As a result of this potential deal, Tesla is facing shareholder lawsuits which alleges that its board members have breached their fiduciary duty in its approval.