SolarCity, Tesla Deal 60-70% Likely Says Credit Suisse

SolarCity Corp SCTY has received an all-stock bid from Tesla Motors Inc TSLA to acquire the company. The price seems to be too low, Credit Suisse’s Patrick Jobin said in a report. He downgraded the rating on SolarCity from Outperform to Neutral, while lowering the price target from $38 to $27.

The probability of the deal being consummated at, or near, the proposed terms now appears to be 60-70 percent, despite concerns on corporate governance and limited near-term strategic and financial rationale for the acquisition, analyst Patrick Jobin commented.

Related Link: Tesla Has Already Admitted That It's Merger With SolarCity Makes No Sense

Near-Term Synergies

Jobin estimated potential near-term synergies at $156m-$387m. Although Tesla is yet to disclose synergy targets, there could be some realized synergies mainly from “duplicative G&A cost reductions and customer acquisition benefits (although we still contend the later could be realized through a joint sales agreement instead of outright purchase),” Jobin mentioned.

There could be a 25-50 percent reduction in G&A costs, saving $82-$163m per annum. Another 10-30 percent reduction in CAC could result in saving ~$75-$224m per year.

“Collectively these cost reductions would enable SolarCity to reduce origination costs by ~$0.16-$0.39/w which improves the unlevered contracted IRR by 180-540 bps from 8.1% to 9.9-13.5%. This should enable SCTY to sell assets to third parties, if desired, and earn a healthy ~$0.145/w incremental margin, accelerating SCTY's path to generating cash,” the analyst wrote.

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorDowngradesPrice TargetAnalyst RatingsCredit SuissePatrick Jobin
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!