SolarCity accepts Tesla's $2.6 billion offer; both shares fall

Mon Aug 1, 2016 5:54pm EDT
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By Paul Lienert and Liana B. Baker

(Reuters) - SolarCity Corp SCTY.O agreed to Tesla Motors Inc's (TSLA.O: Quote) $2.6 billion offer to buy the solar panel installer, the companies said on Monday, clearing one obstacle in the way of Elon Musk's ambitious plans for a carbon-free energy and transportation company.

Tesla's offer represented about half of SolarCity's value a year ago, a tumble reflecting the solar company's slowing growth, complex financial structure and the increased scrutiny of government incentives for rooftop solar.

For Tesla, acquiring SolarCity offers the promise of greater economies of scale in electrical energy management systems, battery production and marketing, tempered by the near-term challenge of managing a high-risk ramp-up of vehicle production and a merger simultaneously.

Standard & Poors said Monday it put Tesla's credit ratings on CreditWatch with negative implications "to reflect the significant risks related to the sustainability of the company's capital structure following the proposed transaction."

Tesla's stock swap offer valued SolarCity at $25.37 a share, or $200 million less than the initial proposal Musk outlined in June, before advisers to the companies had done due diligence.

SolarCity shares shed 7.4 per cent on Monday to close at $24.72, a level that suggests most shareholders are betting the deal will be approved. Tesla shares closed down 2 percent at $230.01.

The company on Monday cut its forecast for full-year installations by 10 percent from prior guidance. In 2017, SolarCity said it expects improvement driven by integrated battery storage offerings and "a new solar product focused on the 5 million new roofs installed each year in the U.S."

SolarCity has come under pressure from rivals offering low-cost solar energy from large, utility-scale installations, and because some state governments have reined in subsidies that encouraged rooftop solar.   Continued...

A Tesla logo hang on a building outside of a Tesla dealership in New York, U.S., April 29, 2016. REUTERS/Lucas Jackson/File Photo