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

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

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.

Latest Ratings for SCTY

DateFirmActionFromTo
Nov 2016Axiom CapitalDowngradesHoldSell
Oct 2016Axiom CapitalUpgradesSellHold
Aug 2016Raymond JamesDowngradesStrong BuyMarket Perform

View More Analyst Ratings for SCTY
View the Latest Analyst Ratings

Posted-In: Credit Suisse Patrick JobinAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

 

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