$2.6 Billion Tesla, SolarCity Merger Enters 45-Day ‘Go Shop’ Period, Awaits SEC Review

Back in June, Tesla Motors [NASDAQ:TSLA] CEO Elon Musk announced that the electric automaker had made the opening moves in acquiring California-based SolarCity [NASDAQ:SCTY] in a mutual share swap worth an estimated $2.4 billion at the time. Part of Elon Musk’s grand master plan to turn Tesla Motors from the world’s best-known electric automaker into a one-stop shop for everything from photovoltaic solar panels through to static energy storage products and electric cars, the merger would also result in Tesla (with Motors dropped from its name) absorb SolarCity staff to become a world leader in renewable energy and advanced transportation.

We resisted the urge to put Elon Musk in Willy Wonka's outfit.

Elon Musk has called the deal ‘essential’ to Tesla achieving the goals lay out in his ‘Grand Master Plan’

Today at the bright and bleary-eyed time of 5am Pacific (8am Eastern) Tesla announced the negotiations of the past month have now successfully concluded with both Tesla and SolarCity boards approving the deal. While the deal isn’t signed and sealed yet (as some outlets are erroneously reporting) it does make mark what is expected to be the final hurdle before the two companies join as one as what Tesla is calling the “World’s only vertically integrated sustainable energy company.”

With the deal now agreed in principle among Tesla and SolarCity executives, there will now be a 45-day agreed-upon wait in the acquisition process known as a ‘go shop’ period. During that time, SolarCity will be able to accept offers from other companies and investment firms interested in making their own moves on the energy company, meaning that should a better offer come along, Tesla will either have to change its offer — or risk losing SolarCity to a competitor.

In real terms however, the likelihood of that happening is very small, especially given the fact that this particular deal is a stock offer rather than a cash offer.

The rest of the process is essentially a formality.

The rest of the process is essentially a formality.

With that hurdle mainly a technicality, the other two challenges facing the merger of the two companies is first an official review by the Securities and Exchanges Commission, which will examine the details of the merger to ensure compliance with all Federal laws. Assuming the SEC approves the deal — and there’s no reason to doubt it won’t — the final challenge will be a vote on the deal cast by Tesla and SolarCity shareholders some time after September 14.

As we’ve mentioned in the past, Elon Musk — who is both CEO of Tesla and Chairman of SolarCity — has recused himself from voting on the merger as he is majority shareholder of both firms and has a vested interest in the deal going ahead. Several other executives and board members have also recused themselves from voting on the deal, including Musk’s cousins Lyndon and Peter Rive.

What’s also worth noting here is that the stock offer — which initially offered $26.50 to $28.50 a share in Tesla stock but then changed it to $25.37 per share in Tesla stock — has effectively wiped out any stock options previously available to Lyndon and Peter Rive.

Although those in both automotive and energy world had been expecting the deal to be announced — as well as those on Wall Street — share prices for both companies took a tumble today during trading, following the time-honored tradition of buying on a rumor and selling on the news. SolarCity stock [NASDAQ:SCTY] fell by 7.42 percent during the day, falling from Friday’s closing price of $26.70 to $24.72 by the end of today’s trading. TSLA meanwhile, fell by 2.04 percent during today’s trading after an initial rush on shares at the opening bell.

Despite the fall in share price however, we can’t help but admire Tesla’s timing of this particular deal: with Tesla due to announce its Q2 earnings this coming Wednesday — and many on Wall Street not expecting TSLA’s losses to shrink much over Q1’s figures – the true effect of the merger on Tesla stock won’t be known for some time to come.



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