Dark clouds are hovering over SolarCity, the solar energy company backed by billionaire Elon Musk. It has lost $283 million at the start of the year and is struggling after a 60 percent plunge of its stock price.
Strangely enough, the group might find a ray of light as it becomes a prime target of acquisition for another one of Musk's companies: Tesla Motors.
The electric car company on Tuesday offered to buy SolarCity, which could be worth up to $2.8 billion, through an all-stock deal. The offer puts the price of each SolarCity share at $26.50 to $28.50, but it will require approval from shareholders.
Musk clarifies the proposal is not due to SolarCity's ailing stock price. He is the chairman of both Tesla and SolarCity, whose executive board includes two of Musk's first cousins, Lyndon Rive, chief executive, and Peter Rive, chief technology officer.
Gloomy Prospects For Tesla's Investors?
Tesla may need to do much to maintain investor confidence and allay any fear of cash burns. Stocks of the company, as market observers point out, have yet to translate to profits for investors.
On the bright side, the acquisition will allow Tesla to streamline its production of electric cars and batteries alongside the manufacture of solar panels, thereby creating a one-stop shop for customers. But while production may run smoothly, the company will still need to address investor concerns over profitability.
After the announcement of the takeover proposal, shares of the electric car company fell 12 percent in after-hours trading, while SolarCity's rose 15 percent, hinting at investors' sentiments this early.
But Musk is convinced the acquisition will not create "additional financial risk for Tesla."
"It only amplifies the possibilities for both companies," he says.
Tesla has also recently sold shares to shore up funding of $1.7 billion for capital expenses, and the company might not turn in any profit until 2020 after its aggressive push for the construction of a battery factory in Nevada.
Musk and Rive Avoid Conflict Of Interest
"Ultimately, the shareholders will decide," CEO Rive states in a letter to employees.
To avoid any conflict of interest, Musk and his family have recused themselves, along with Antonio Gracias who sits on the board of Tesla and SolarCity, from voting on the offer.
Musk is SolarCity's largest shareholder, owning 22.2 million shares, or 22 percent, of the company. He could rake in as much as $632 million from the takeover, as Recode explains. His cousins, on the other hand, own 2.3 million shares each and stand to gain $65 million each.
