Published on November 7th, 2016 | by James Ayre0
Institutional Shareholder Services: Tesla’s SolarCity Acquisition A Good Idea
The prominent advisory firm Institutional Shareholder Services has given its recommendation to support Tesla’s $2.3 billion SolarCity acquisition/merger, telling shareholders that Tesla would be able to bridge the funding gap with SolarCity, and also that the acquisition was an important step in the firm’s path to becoming an integrated sustainable energy company.
The advisory firm also made note of the $30 billion cleantech giant’s decision to give minority shareholders “enough of a voice to overcome governance concerns.”
Tesla CEO Elon Musk commented in an interview with CNBC: “I thought they wouldn’t recommend us, but they did. They tend to be a bit negative.” He also saw fit to tweet a Bloomberg article on the subject.
Institutional Shareholder Services, world's top independent evaluator, recommends in favor of Tesla-SolarCity merger https://t.co/o17l0Jbswa
— Elon Musk (@elonmusk) November 4, 2016
As it stands, a vote involving shareholders of both companies is expected to take place on November 17.
Bloomberg provides more: “The ISS report said that, while Tesla has a ‘suboptimal governance structure,’ the requirement that a majority of unrelated shareholders be required to approve the deal helps get past that issue.” As Elon has said many times, they want to do the right thing, not just what they are required to do, and that ethic has carried over into voting regarding this deal.
“ISS said Tesla ‘is paying a low to no premium to take over SolarCity.’ The announced cost synergies of $150 million, even if capitalized at a low multiple of 10 times, would create $1.5 billion, the equivalent of almost two-thirds of the acquisition price, according to the firm.
“For SolarCity shareholders, the offer represents a 14% premium over the stock price the day before the proposal was announced, ISS said. It also gives those shareholders Tesla stock, which is easier to trade, the firm said.”
Tesla CEO Elon Musk has previously commented on the synergies between the two companies, noting that they go together like “peanut butter and jelly.” He has also noted that SolarCity will add $1 billion in revenue to the new, combined company in 2017, as well as $500 million in cash to Tesla’s balance sheet over the next few years (3 years).
In response to criticism about the deal, he recently stated that “quite a few naysayers from big hedge funds” have been consistently wrong about Tesla — with a “batting average of zero.”
He’s not wrong. As with most disrupters, most of the criticism against Tesla seems to be the result of discomfort with the changes that are now coming. There will of course be those who lose out on profit and market share as a result of the changes that Tesla is helping to spearhead.