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Tesla-SolarCity Would Create A 'Powerhouse,' But Shareholders Will Be Very Skeptical

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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.

Deal Unlikely

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

Related Link: Tesla's Bid Suggests 'Very Little Value' In SolarCity; Gordon Johnson Maintains Sell

“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 2017Evercore ISI GroupDowngradesOutperformIn-Line
Oct 2017Morgan StanleyMaintainsEqual-WeightEqual-Weight
Oct 2017Standpoint ResearchDowngradesHoldSell

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Posted-In: Credit Suisse Patrick JobinAnalyst Color Long Ideas Reiteration Analyst Ratings Trading Ideas


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