JPMorgan On Tesla/SolarCity Deal: 'You Can't Put The Genie Back Into The Bottle'

SolarCity Corp SCTY received an all-stock takeover offer from Tesla Motors Inc TSLA for a price of $26.50-$28.50. JPMorgan’s Paul Coster, who has a Neutral rating on SolarCity, said in a report that the offer price is marginally higher that the price target of $25. The offer price represents a 25-35 percent premium to Tuesday’s closing price.

Synergies Look Thin

The merger represents a combination of an Oil company with a conventional auto OEM. Analyst Paul Coster commented that there don’t seem to be any near-term customer, product or technology synergies for the proposed combination.

Coster added, however, that the deal represents “reasonable value,” which could give “capital-hungry SCTY better access to wholesale capital markets via its acquirer’s balance sheet.” There don’t seem to be other cost synergies apart from those that would have been available even with a close partnership between SolarCity and Tesla Motors.

A possible reason for the deal making sense is that SolarCity’s previous go-it-alone approach “suddenly seems unattractive,” while there could be an increase in the cost of capital needed to fund standalone growth in case the takeover is not completed, the analyst mentioned.

“Over the long haul, there may be some synergies around installation, around optimizing energy distribution in the home, but we think these are not realizable within the next 3 – 5 years,” Coster wrote.