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Tesla, SolarCity Shares Drop as $2.6 billion Offer to Buy Sister Firm made by Tesla

Tesla, SolarCity Shares Drop as $2.6 billion Offer to Buy Sister Firm made by Tesla
Shares of Tesla Motors Inc as well as SolarCity Corp saw a drop is prices after the announcement of SolarCity Corp agreeing to be acquired by sister company Tesla Motors Inc. The deal that had been talked about and pushed by Tesla owner Elon Musk for a couple of months now, is worth $200 million less than the initial offer.
Following the announcement, Tesla Chief Executive Officer Elon Musk said on Monday that the acquisition of solar panel installer SolarCity, Electric vehicle maker Tesla expects to achieve "significant" cost savings and "dramatic improvements" in manufacturing efficiency.
Musk said that the new combined entity after the acquisition will likely require a "small equity capital raise" next year but added that it will have a "stronger balance sheet" altogether. Both companies have projected achieving positive cash flow later this year even though both of them have been burning through cash.
Musk is the chairman of SolarCity and is also the largest shareholder in both companies. The co-founders of SolarCity are his cousins Lyndon Rive and Peter Rive.
With Tesla holding 93.5 percent of the combined companies and SolarCity 6.5 percent, the two companies on Monday announced an agreement to merge. The companies said that the boards and shareholders of both the companies are expected to approve of the deal in the fourth quarter.
Residential and commercial battery storage systems, electric vehicles and solar panels would be sold by the new combined entity and would use a single brand name for all the products.
"Solar and storage are at their best when they're combined," the companies said in a blog post on Tesla's website.
An integrated carbon-free energy enterprise, offering electric vehicles, car sharing and solar energy systems is a vision that Musk unveiled last month in the form of an updated "master plan" that sketches out a vision for the integration of all the objectives.
SolarCity is allowed to solicit offers from other potential buyers for 45 days through Sept. 14 under the "go-shop" provision that has been granted under the deal.
Since Tesla first made an offer on June 21 that was valued at $2.8 billion SolarCity's stock had risen about 26 percent, valuing the company at $2.62 billion up to Friday's close. SolarCity stockholders would receive 0.110 Tesla common shares for every share held, the companies said on Monday.
Based on the five-day volume-weighted average price of Tesla shares as of Friday, the offer values SolarCity at $25.37 per share.
Tesla's initial offer was pitched at 0.122 to 0.131 Tesla shares for each SolarCity share and SolarCity had formed a special committee to review Tesla's offer.
While Tesla dropped 1.9 percent at $230.40, SolarCity shares were down 5.1 percent at $25.34.
Since it is expected that the combination would improve manufacturing efficiencies and reduce customer acquisition costs, Tesla and SolarCity expect to save $150 million in costs in the first full year after the deal closes. However I the first year, the combined companies could "significantly exceed" that mark, Musk said he believed.
Since the company first announced the offer, Tesla shares had risen 7 percent up to Friday's close.

Christopher J. Mitchell

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