Institutional Shareholder Services (ISS), a major shareholder advisory firm, endorsed to investors the controversial $2.6 billion Tesla-SolarCity merger deal. Both Tesla’s and SolarCity’s shareholders were encouraged by the firm to back the said union of the two companies.
ISS gave three accounts on why the electric car company shareholders should sponsor the bid to acquire the solar panel company.
First, the move to purchase Solarcity will facilitate Tesla chief executive officer Elon Musk’s plan to recreate both companies into one green-energy company, with products soon to range from solar panels to electric cars.
Second, the advisory firm calculated the eventual cost savings and yields that may materialize upon the merger. An estimated $150 million in cost savings from the deal is projected to yield $1.5 billion if underwritten, which is well worth two-thirds the purchase price.
The third, and probably starker account, is that Tesla is probably buying SolarCity for less.
For every share of SolarCity, Tesla has offered to pay 0.11 of a newly issued share, which is said to be valued at $20.99 as of Friday afternoon.
It was a bid lower than SolarCity’s trading range this summer when Musk made public his intention to buy the company out.
For Musk, the move was a “no-brainer” if seen from a strategic point of view.
SolarCity stock surged 8.8 percent to 20.18 in the stock market today while Tesla stock jumped 1.7 percent to 190.56 after hitting an eight-month intraday low.
Although SolarCity rose, gains were pared when Glass Lewis, another proxy advisory firm, called the deal a “thinly veiled bailout.”
With the solar panel company’s fortunes and stock price plunging as it ran up a $3.1 billion debt to support operations.
Investors also have diminished their faith on the future of independent solar companies with competitors like SunEdison Inc. who filed for bankruptcy.
ISS thinks that Tesla being a $30 billion company with virtually no debt should be able to support the acquisition though it means shelling out high finances.
This positive evaluation from ISS may well change the entire Tesla-SolarCity story since the advisory firm’s recommendations is a big influence with the big mutual funds that comprise the electric automaker’s board.
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