Tesla Motors Inc TSLA has made an all-stock offer to acquire SolarCity Corp SCTY, representing a 25–34 percent premium to SolarCity’s closing price.
UBS’ Colin Langan reiterated a Sell rating on Tesla Motors and maintains a Neutral rating on SolarCity.
Unnecessary Distraction
“The transactions would create a vertically integrated sustainable energy company with EVs, storage, and solar capabilities,” Langan mentioned.
Expressing caution regarding the deal, the analyst said that synergies appeared limited, while the deal added complexity and a potential distraction for Tesla Motors management.
“TSLA already is facing aggressive Model 3 production targets of 500k by 2018 and the production ramp of the Model X has been slow. Adding SCTY may increase the operational and accounting complexity as the business is very different from auto and storage,” Langan said.
Although SolarCity would account for only 10 percent of the combined entity’s sales, the company’s VAAP losses could be a material drag.
The analyst expects SolarCity to continue to need at least upfront capital investment to grow its business, which could lead to increased overall cash burn for Tesla Motors.
Shareholder Approval
Langan also pointed out that there could be challenges to getting shareholder approval for the deal.
“We don't see the premium as particularly rich - the high end of $28.50 is 45 percent below where the stock ended 2015,” the analyst noted.
In addition, Tesla Motors’ stock traded down after hours, making the value of the all-stock premium decline to 11–19 percent.
At Time Of Writing...
- Tesla was down 6.69 percent at $204.92.
- SolarCity was up 8.54 percent at $23.00.
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