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Tesla offers to acquire SolarCity, makings of a mega, Musk empire?

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Elon Musk is admittedly one of the top industrialist futurist and businessman currently around. With forward looking companies such as SpaceX, Tesla and SolarCity, Musk is often hailed as the Tony Stark of our times. Well, the billionaire seems to be looking to solidify his empire. In lieu of that, Tesla has announced its offer to acquire Musk’s solar panel installation company SolarCity.

You are probably familiar with Tesla. SolarCity on the other hand, may require a bit of an introduction, particularly outside the US. SolarCity is a provider of energy services, and is headquartered in San Mateo, California. Among other things, the company designs, finances, and installs solar power systems. The company has over 13,000 employees and is chaired by — you guessed it — Elon Musk. The company has gained significant traction in the US markets through a range of attractive offers such as installation at $0 down payment.

Tesla announced the acquisition offer through a blog post on the company website.

The SolarCity team has built its company into the clear solar industry leader in the residential, commercial and industrial markets, with significant scale and growing customer penetration. They have made it easy for customers to switch to clean energy while still providing the best customer experience. So, we’re excited to announce that Tesla today has made an offer to acquire SolarCity.

As per TechCrunch, the acquisition will take the form of SolarCity stock exchanged for Tesla stock. The exchange would be financially sound for SolarCity as it would pay a premium of 21 percent to 30 percent on top of SolarCity’s current market value of $2.14 billion. The deal still has to get a go-ahead from the SolarCity board and interestingly enough, Musk and Antonio Gracias, who are on the boards of both the companies, will abstain from the voting process.

The fact that two of the most powerful men in the company are abstaining from voting makes me think that the deal will in all likelihood, go through. After all, Musk isn’t be very likely to make an acquisition offer and then abstain from voting, if a company was going to refuse.

A Good Deal

Meanwhile, the move certainly makes sense. The fact that both of them have Elon Musk at the helm quite apart, the acquisition will also lead to significant consolidation in the clean energy space. As Tesla puts it,

We would be the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers.

Look at it this way, you could use SolarCity’s walls and panels to power your houses and charge your Tesla cars and basically complete the circle of sustainable energy.

We would be able to expand our addressable market further than either company could do separately. Because of the shared ideals of the companies and our customers, those who are interested in buying Tesla vehicles or Powerwalls are naturally interested in going solar, and the reverse is true as well. When brought together by the high foot traffic that is drawn to Tesla’s stores, everyone should benefit.

Or Particularly Good For Musk?

Meanwhile, a slightly closer look at the finances of SolarCity reveals another picture and raises questions upon the timing of the deal. Musk owns a 22.2 percent stake in SolarCity — a company which has been bleeding money recently. SolarCity’s shares were at $50 in December and have since then, slipped down to around $21.

Paying a premium makes absolutely no sense, specially when you could have waited for SolarCity to bleed some more and have acquired it for much less than its current market value. However, waiting would have meant that Musk as the primary stakeholder, would have lost millions of his own money — and hence the Tesla Musk to the rescue.

Which may be another reason why Elon Musk has refrained from exercising his voting powers. Following the announcement, SolarCity’s share price bounced up by 20 percent in after-hours trading while Tesla’s share price dropped by 13 percent.

What’s next I wonder? A SpaceX acquisition so that people can get out of their Tesla cars and fly off into space? Jokes apart though,  the real motives are probably a mix of the good and bad. Meanwhile, if the deal goes through, Musk will be saved a large chunk of his money and the world will also obtain its first “vertically integrated energy company”. For now though, lets await an official word from SolarCity confirming the acquisition.

A bibliophile and a business enthusiast.

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