Tesla and SolarCity May Merge Sooner Than Expected

Tesla Fremont Factory

According to Reuters, Tesla Motors Inc. and SolarCity Corp may announce a merge on Monday, 1 August 2016. According to credible sources who talked to Reuters, SolarCity agreed to the $2.6 billion buyout offer from the electric car maker.

Tesla is the famous zero emission car maker and SolarCity is a major solar panel installer. Merging the two companies will help Elon Musk, Tesla’s CEO, to accomplish his Grand Master Plan that he announced earlier in July. The Grand Master Plan focuses on providing consumers with low-carbon products.

Elon Musk is the CEO of Tesla and the chair of SolarCity, and the two companies’ biggest shareholder. However, a merger agreement is not sure considering that SolarCity formed a special tribunal, independent of Musk’s influence and the influence of other executives believed to be close to him, to assess Tesla’s offer.

The merger agreement, if agreed upon, will include a condition called go-shop provision. The provision will allow SolarCity to search for contracts with other companies, even automobile companies, for a short while after the merger.

The sources, who cannot be identified due to the confidentiality of the deal, did not disclose any more information shedding light on the details of the merger agreement. However, Tesla previously suggested that it offered 0.122 to 0.131 of its shares for one SolarCity share. Tesla has a market capitalization of $34.6 billion while SolarCity has a market capitalization of $2.6 billion.  Both companies refused to comment on the merger agreement.

According to Musk, merging the two companies is in the best interests of consumers as the final company would reach consumers more effectively. The resulting company would install solar panels on their roofs, provide zero-emission electric cars in their garage and provide power to Tesla storage batteries in their homes. The $5 billion Giga factory in Nevada, equipped with SolarCity’s solar panels, is a critical element in the combined company.

Although Tesla’s shareholders were not initially in agreement with the merge, which was announced on 21 June, they have gradually warmed up to it. After the announcement of the offer, Tesla’s shares dropped to $190 per share, but the shares price on Friday closed at $234.79. SolarCity shares were going for $26.70 on that same day.

Musk and several other SolarCity and Tesla executives, such as SolarCity board member Peter Rive and Musk’s cousin, who is SolarCity CEO, Lyndon Rive, recused themselves from voting their shares should the deal come to a vote.

Meanwhile, Tesla is to report its second quarter earnings on 3rd August. Earlier, in July, the company announced that its earnings fell short of its expectations. Tesla took a hard blow on 3oth June when the US National Highway Traffic Safety Administration opened an investigation into a catastrophic traffic accident involving a Tesla Model S. The driver, who died in the crash, was using the Autopilot System, which partially takes over the steering and braking systems. Musk has since defended Tesla and the Autopilot technology.