Tesla Bid For SolarCity Comes Under Fire.
“the deal stretches the bounds of industrial logic” “Harebrained”
Financial commentators weren’t impressed by battery-powered car maker Tesla Motors decision to buy SolarCity as the dust settled on the deal.
Tesla Motors CEO Elon Musk said he would make an all-Tesla stock offer for solar panel installation firm SolarCity worth nearly $3 billion. Musk said he wouldn’t vote his 21% share in Tesla, or his 22% stake in SolarCity.
According to the Financial Times, news of the deal spurred a $500 million jump in SolarCity shares but wiped $4.1 billion from Tesla’s.
The Wall Street Journal’s Heard on the Street column wasn’t impressed.
“(the deal) is the sort of move that, even for the most Panglossian Silicon Valley investor, stretches the bounds of industrial logic. It also stretches some ethical limits given the fact that Mr Musk is the largest, albeit a minority, shareholder in each firm,” Heard on the Street said.
The Financial Times opinion column, Lex, didn’t questioned the industrial logic of the move.
“But of course Tesla does not need to buy a solar company, and if it did, it could have bought a good one. SolarCity has more than $3 billion of debt and in a timely research note on Tuesday, Goldman Sachs noted that could come close to breaching its covenants,” Lex said.
“The proposed deal is the most blatant in a series of related party deals which has also seem Mr Musk’s third company, SpaceX, buy SolarCity bonds. The only saving grace is that it requires the blessing of both Tesla and SolarCity shareholders and Mr Musk has agreed not to vote his shares,” Lex said.
Heard on the Street, which entitled its column Tesla Buying SolarCity: This Deal Defies Common Sense”, said in the past 4 quarters Tesla burned up nearly 50 cents of cash for every dollar of sales, while SolarCity burned nearly $6 for each dollar of sales. The column, by Charely Grant and Spencer Jakab said bringing together two cash hungry companies because they are green and may one day use Tesla’s batteries was “harebrained”.
Lex comforted itself with the theory that because institutional investors have most of the votes needed to approve the deal, they will see sense, and the merger may fail.