SolarCity Represents A 'Lean, Mean, Cash-Burning Machine' For Tesla
Tesla Motors Inc (NASDAQ: TSLA) has offered to acquire SolarCity Corp (NASDAQ: SCTY) in an all-stock deal valued up to $2.9 billion. Barclays’ Brian A. Johnson commented in a report that the deal involves the assumption of an additional $2.6 billion of debt in a transaction that offers limited synergies and uncertain growth/cash prospects, which “only reinforces our negative view” of Tesla.
Johnson has Underweight ratings for both Tesla and SolarCity, with price targets of $165 and $20, respectively.
Merger Reinforces Cash Burn
SolarCity has limited access to capital, and the deal would allow the company to benefit from Tesla’s “relatively favorable access to and cost of capital,” Johnson said. He added, however, that the combined entity is likely to “magnify the losses and cash burn” that both the companies are witnessing individually.
The cash burn estimate for the combined entity is $2.8 billion for 2016 and $2.4 billion for 2018, as well as the $2.5 billion of combined net debt.
“In funding SCTY’s losses, it further reinforces our view TSLA will need to return to the capital markets for additional capital infusions, likely via the equity markets. However, this is contingent on the equity capital market remaining an open well for TSLA – which is far from certain,” the analyst wrote.
Latest Ratings for TSLA
|Mar 2017||Deutsche Bank||Maintains||Hold||Hold|
|Mar 2017||Bernstein||Initiates Coverage On||Market Perform|
|Feb 2017||Goldman Sachs||Downgrades||Neutral||Sell|
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