Tesla and SolarCity – 9/29/16

Tesla Motors Inc.‘s proposed merger with SolarCity Corp. is facing resistance from some shareholders, though it looks as if that won’t stop the deal.

Two individuals and two pension funds each allege that Tesla’s board failed to assess proposed merger as was their duty and that the deal will disproportionately benefit certain stakeholders like SolarCity Chairman and Tesla executive Elon Musk, who owns about 20% of the shares in both companies.

The plaintiffs include the Arkansas Teacher Retirement System, City of Riviera Beach Police Pension Fund, Ellen Prasinos and  P. Evan Stephens, none of which are among the major owners of Tesla.

The controversial plan to combine the car maker and the struggling solar firm comes at an odd time. With Tesla promising more sales of its new Model 3 car by 2018 than the total sales of all Tesla models, the last thing the company needs is an internal struggle to distract from getting the capital needed to ramp up production.

For its part, Tesla declared the cases are without merit and is sticking to the belief that there are synergies to be gained from integrating SolarCity’s business into Tesla products, like the Powerwall battery.

Neither company has turned a profit yet, but Tesla is expected to have a major victory in its mass-market Model 3 that will be available late next year. SolarCity has no similar winner coming up and its shares have plummeted by two-thirds this year on concerns about slowing sales.

And yet, many predict the deal will go through. And understandably so, since the two companies have many of the same big stakeholders, who are being offered roughly $5 more a share than their SolarCity stock is worth now. Goodwill towards Musk from his previous successes may also play a role as might faith in the long position of the companies if they believe the future of electric cars and solar power is bright enough to outweigh short-term troubles.

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