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Is The SolarCity-Tesla Merger A Thinly Disguised Bailout?

(REUTERS/Rashid Umar Abbasi )

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Chris White Tech Reporter

Tesla Motors announced Monday it had reached an agreement to merge with SolarCity, raising suspicions the move was simply meant to bailout the beleaguered solar panel company.

The deal values SolarCity at about $2.6 billion. The company’s stockholders receive 0.11 shares of Tesla for each share of SolarCity, according to Friday’s closing prices. The merger values both companies at $25.83 apiece.

The merger, if approved by SolarCity shareholders, would dramatically increase the size of Tesla’s workforce to 30,000 employees. It’ll help create a unique combination of solar, storage and transportation.

Elon Musk, the CEO and president of both Tesla and SolarCity, maintains the merger is purely for creating a cohesive entity helping him create a sustainable energy for the future.

“It’s really all part of solving the sustainable energy problem,” Musk told reporters during a phone conference. “That’s why we are all doing this to accelerate the advent of a sustainable energy world.”

Yet there are indications the merger could be about bailing out a moribund solar company.

SolarCity’s financial stability took a major hit recently, as the federal government and states such as Nevada cut back on lucrative taxpayer subsidies and tax credits propping up the solar panel company.

The cutbacks made the company’s stock tumble, which caused the company’s price to hover around $20.82 per share, down from its 2014 high of more than $86.

Financial institutions devalued the entity considerably following the cutbacks. JP Morgan downgraded SolarCity’s stock in February. Barclays notched a bearish tone on SolarCity’s stock in February, lowering the price target from $49 to $20 per share.

SolarCity was flying high on taxpayer money leading up to 2014 until Nevada utility regulators slashed how much energy companies paid solar panel owners for the energy they inject back into the grid.

Nevada’s decision caused the solar panel company’s stock to plummet by roughly $165 million in a single day.

The solar panel producer crafted a special committee directed by Donald Kendall and Nancy Pfund, both considered independent entities on the SolarCity board of directors. In fact, Kendall was the only person on the company’s board not to have any direct ties to CEO Elon Musk, who owns nearly 20 percent of each company.

“Following its review, the Special Committee unanimously determined that the terms and conditions of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement and the Merger are fair to, advisable and in the best interests of the stockholders of SolarCity,” Kendall and Pfund said in a statement agreeing to the merger released Monday.

“It’s really all part of solving the sustainable energy problem,” Musk told reporters during a phone conference. “That’s why we are all doing this to accelerate the advent of a sustainable energy world.”

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