Tesla-SolarCity Would Create A 'Powerhouse,' But Shareholders Will Be Very Skeptical
SolarCity Corp (NASDAQ: SCTY) has received an all-stock takeover offer from Tesla Motors Inc (NASDAQ: TSLA). Credit Suisse’s Patrick Jobin maintained an Outperform rating for SolarCity, with a price target of $38. The analyst commented that while shares may rally on the acquisition proposal, the deal is unlikely to receive Tesla shareholder approval.
The offer price represents a 21-30 percent premium to Tuesday’s closing price. SolarCity's board has not yet approved the offer and a shareholder vote would take place before finalizing a deal.
Jobin expects Tesla’s shareholders to resist the deal. He cited the following reasons:
- Intense skepticism related to the residential solar space
- Regulatory risks
- SolarCity’s consumption of capital – The company mentioned it would need ~$2b this year
- Limited synergies
“We believe this announcement is enough to force SCTY shorts to cover, but given the corporate governance questions and likely shareholder opposition, we believe this will not be a simple acquisition,” Jobin wrote. He added that there didn’t seem to be a strong strategic or financial rationale for the proposed transaction, even though SolarCity is currently undervalued.
“While we expect a positive reaction for SCTY, we put a low 20-40% probability of the acquisition occurring and see heightened medium-term risks for SCTY should the pending acquisition disrupt the company's access to capital markets over the next 3-9 months,” the analyst stated.
Latest Ratings for TSLA
|Oct 2016||Goldman Sachs||Downgrades||Buy||Neutral|
|Sep 2016||Cowen & Co.||Initiates Coverage on||Underperform|
|Jun 2016||Argus Research||Downgrades||Buy||Hold|
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