SolarCity, Tesla Deal 60-70% Likely Says Credit Suisse
SolarCity Corp (NASDAQ: SCTY) has received an all-stock bid from Tesla Motors Inc (NASDAQ: 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.
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.
Latest Ratings for SCTY
|Oct 2016||Axiom Capital||Upgrades||Sell||Hold|
|Aug 2016||Raymond James||Downgrades||Strong Buy||Market Perform|
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