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Elon Musk's Tesla Offers to Buy Elon Musk's SolarCity, Shares Tumble

posted by martyb on Wednesday June 22 2016, @02:07PM   
from the bright-idea? dept.

takyon writes:

Investors and finanical analysts have been baffled by a $2.86 billion bid by electric car manufacturer Tesla to acquire SolarCity:

Musk, the largest shareholder of both companies, said he and Antonio Gracias, who is also a member of both boards, will recuse themselves from voting on the takeover offer. The all-stock deal is worth $26.50 to $28.50 for each SolarCity share, Tesla said. That calculates to a premium of as much as 35 percent from Tuesday's closing price. The average 12-month price target among analysts surveyed by Bloomberg is $29.82. "In my personal opinion, this is obviously something that should happen," Musk, who is chief executive officer of Tesla and chairman of SolarCity, said in a conference call. "It's a no-brainer." With 100.2 million SolarCity shares outstanding, the offer is worth as much as $2.86 billion.

[...] Tesla fell as much as 12 percent in extended trading while SolarCity rose as much as 29 percent.

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Original Submission

• Re:I saw an article which called this (Score: 1, Informative) by Anonymous Coward on Wednesday June 22 2016, @06:58PM

  by Anonymous Coward on Wednesday June 22 2016, @06:58PM (#363962)

  Ok I think it was a WSJ article... here's a link with a blurb and link back to the original WSJ article. Sorry I do not have my WSJ login handy so no copy pasta on the article itself.

  The gist is that he is taking out personal loans backed by his own shares in Tesla and Solar City to finance operations at those companies. Logically, a significant drop in stock value is going to cause a margin call... that may not hurt him too much directly; however, indirectly, I do not think the effect on the share price of Elon Musk selling off significant shares in his companies to pay margin calls can be underestimated. Remember, Tesla and SolarCity are running on the faith investors have in their future ability to generate profits. He is very sensitive to cash flows as they are still mostly in the R&D stage for the product everybody is anticipating, the "mainstream" priced all-electric Model 3. Any crimp in their cash flow could set them back years on their production schedule; a margin call that dries up cash for a quarter could potentially tank the company in this scenario.

  Mr. Musk said it is “important that there not be some sort of house of cards that crumbles if one element of the pyramid of Tesla, SolarCity and SpaceX falters.”

          He said his loans [backed by Tesla and SolarCity stock] aren’t risky to shareholders because they add up to less than 5% of his total net worth, which exceeds $10 billion. That figure doesn’t include Mr. Musk’s large stake in SpaceX, which is private. He said he could easily put up more SpaceX or Tesla shares as collateral if needed.

          “The odds that a margin call cannot be addressed are almost zero,” Mr. Musk said in the interview.

  FT.com [ft.com]

  WSJ.com [wsj.com]

  Parent

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