Tesla puts Master Plan in action, reaches $2.6 billion deal to merge with SolarCity

August 1, 2016

Over the past 24 hours, rumors began circulating that Tesla would announce details of its anticipated merger with SolarCity today. And lo, the rumors have proven true: this morning on the Tesla blog, the automaker posted information about the massive, $2.6 billion deal. 

The two companies have agreed to an all-stock arrangement that will give SolarCity stockholders 0.110 shares of Tesla for every SolarCity share they own. SolarCity's value is based on a stock price of $25.37, which is slightly lower than the $26.70 at which it closed on Friday.

The sale isn't expected to be finalized until the fourth quarter of 2016. Apart from all the necessary paperwork that needs to be completed prior to the merger, SolarCity also has a 45-day "go-shop" period, during which it can receive bids from other interested parties. The "go-shop" window closes on September 14.

Tesla CEO Elon Musk proposed merging the companies back in June, which caused grumblings in some quarters about weak finances, bailouts, and nepotism. In late July, Musk released details about part two of his master plan for Tesla, which included buying SolarCity to streamline the two companies' energy production and storage efforts. After all, SolarCity needs high-capacity batteries to store solar power, and Tesla needs them to run its electric cars and its sleek Powerwalls. Not coincidentally, Tesla is ramping up research and production of such batteries at its new, multi-billion-dollar "gigafactory" in Nevada. 

In today's announcement, Tesla describes its merger with SolarCity as a means of creating "the world's only vertically integrated sustainable energy company". Tesla also reiterates its reasons for pushing the merger now:

"Solar and storage are at their best when they're combined. As one company, Tesla (storage) and SolarCity (solar) can create fully integrated residential, commercial and grid-scale products that improve the way that energy is generated, stored and consumed.

"Now is the right time to bring our two companies together: Tesla is getting ready to scale our Powerwall and Powerpack stationary storage products and SolarCity is getting ready to offer next-generation differentiated solar solutions. By joining forces, we can operate more efficiently and fully integrate our products, while providing customers with an aesthetically beautiful and simple one-stop solar + storage experience: one installation, one service contract, one phone app."

What it means for you

It's become increasingly clear that green energy--that is, energy harnessed from renewables like solar and wind--is the next big thing. But before it can truly take off with mainstream consumers, it has to become affordable. 

Tesla says that merging with SolarCity will help bring down costs by streamlining production, research and development, and more. In its blog post, the company notes that it expects "to achieve cost synergies of $150 million in the first full year after closing".

If all goes as planned, the merger will cut the cost of hardware, helping to make cars, solar equipment, and batteries cheaper. The savings could also whittle away at the cost of installing solar panels and battery systems.

Whether all will go as planned, though, is anyone's guess. Critics note that both companies are losing massive amounts of money, and some have described this merger as a bailout of SolarCity. (It's worth noting here that Musk owns 21 percent of Tesla and 22 percent of SolarCity, and that the latter is run by his cousin.)

Is this merger truly a win-win for consumers, as Tesla describes it? Or is it a case of Musk trying to salvage one of his start-ups? Is he biting off more than he can chew, juggling Tesla, SpaceX, and SolarCity? Sound off in the comments below.

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