SolarCity Agrees to Tesla's $2.6 Billion Deal


Tesla is buying Solar City for $2.6 billion in an all-stock deal.

Electric vehicle maker Tesla expects to achieve "significant" cost savings and "dramatic improvements" in manufacturing efficiency as a result of the acquisition of solar panel installer SolarCity, Tesla Chief Executive Officer Elon Musk said on Monday. Tesla's Powerwall and Powerpack will provide energy both to a home or business in addition to being used to recharge an electric vehicle. Tesla said the combination would create the world's only "integrated sustainable energy company".

CEO Elon Musk speaks at the unveiling of the Model 3 at the Tesla Motors design studio Thursday, March 31, 2016, in Hawthorne, Calif. SolarCity is owned and run by Musk's cousins Peter and Lyndon Ryve.

Musk himself appears to see a congruence of interests between the two companies, not a conflict.

But as part of the agreement, SolarCity has a "go-shop" that runs through September 14, 2016, meaning the solar energy company is allowed to solicit alternative proposals during that time.

Scheduled to be completed in the fourth quarter of this year, the transaction is subject to approval from shareholders, regulatory approvals, and meeting other conditions of the merger agreement.

However, the initial offer was about $2.7 billion, which has sent shares for both companies down in early trading Monday - Tesla was down 0.4 percent and SolarCity fell 4.9 percent. This is lower than the original range of $26.50 to $28.50 proposed back in June.

Musk was already the chairman and 22.54% shareholder of SolarCity. Shares of SolarCity have actually surged over the last few months, so it's not clear why the price tag got cut.

Up until the Friday's close, Tesla shares posted 7% jump since the company first disclosed the offer. After the first full year of operations as a joint company, they expect "cost synergies of $150 million".

The boards of directors of each company have signed off on the deal.