Elon Musk Wants To Combine His Empire

Tesla Buying SolarCity

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What's going on?

Tesla, the electric car company founded by famed entrepreneur Elon Musk, has made an audacious bid for another Musk-founded company: solar power firm SolarCity. While the companies tout the benefits of the deal, not everyone agrees.

What does this mean?

The idea is that the combined company would be able to offer end-to-end clean energy products to its customers which means, for example, the two companies can cross-sell products to customers. SolarCity also can benefit from the battery technology that Tesla is developing. To try to make the decision to merge fair, Musk and others who own stock in both companies cannot vote on whether to approve the deal. Also, Tesla plans to give SolarCitys shareholders stock in Tesla rather than cash – which means Tesla wouldnt have to raise cash from investors in order to pay for the acquisition.

Why should I care?

The bigger picture: Musk says its a no-brainer but not everyone agrees. SolarCity has been struggling mightily lately: it’s spending a lot more than it makes in revenue and its stock price was down almost 60% in the past year before this deal was announced. Tesla also burns through a lot of cash and its about to ramp up its most important project yet: its Model 3 sedan. While this deal would be nice for SolarCitys shareholders, now might not be a good time for Tesla to be saddling itself with a company that seems to be struggling.

For the stocks: SolarCitys stock jumped about 3% while Teslas fell about 10%. Based on Teslas stock price prior to the announcement, SolarCity is being valued at more than $2.5 billion (which is almost 30% higher than SolarCitys pre-announcement value). If the deal goes through, SolarCity shareholders will get newly created Tesla stock, which would mean that Teslas existing shareholders would consequently own proportionally less of Tesla – thats one reason why Teslas stock went down. Another reason might be that investors think this deal is a bad idea.

Originally posted as part of the Finimize daily email.

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