It appears that Tesla is on the verge of acquiring SolarCity Corporation after the FTC announced its approval of the $2.6 billion deal late last week. The FTC’s approval of the deal came earlier than many expected, as the deal obtained early termination from the FTC. The deal between Tesla and SolarCity was finalized only four short weeks ago, and some wondered whether Elon Musk’s involvements as both the Tesla CEO and Chairman of SolarCity would put a wrench into the planned merger.
Tesla Offers to Purchase SolarCity for $2.6 Billion
The two companies have billed the merger as a way to bring together a solar energy company (SolarCity) and an energy storage systems provider (Tesla). In late June, Tesla announced its offer to acquire SolarCity Corp, which proposed:
[A]n exchange ratio of 0.122x to 0.131x shares of Tesla common stock for each share of SolarCity common stock. This proposal represents a value of $26.50 to $28.50 per share, or a premium of approximately 21% to 30% over the closing price of SolarCity’s shares, based on today’s closing price of SolarCity’s shares and the 5-day volume weighted average price of Tesla shares.
Tesla’s Offer to SolarCity
In its proposal, Tesla also set forth that:
The board of directors of Tesla is excited at the prospect of a potential combination of SolarCity’s business with Tesla. We believe that the possibilities for product, service and operational synergies would be substantial, and that a combination would allow our companies to build on our respective core competencies and remain at the forefront of delivering innovative approaches for sustainable transportation and energy. We believe that a combination would generate significant benefits for stockholders, customers and employees of both Tesla and SolarCity.
Alleviating Concerns Over Elon Musk’s Involvement in Both Companies
In order to alleviate any concerns over Elon Musk’s involvement in both companies, Tesla said:
We are committed to a possible transaction that is fair to SolarCity’s and Tesla’s respective stockholders. To help ensure that, Tesla is prepared to make the consummation of a combination of our companies subject to the approval of a majority of disinterested stockholders of both SolarCity and Tesla voting on the transaction. In addition, as a result of their overlapping directorships, Elon Musk and Antonio Gracias have recused themselves from voting on this proposal at the Tesla board meeting at which it was approved, and will recuse themselves from voting on this proposal at the SolarCity board as well. We believe that any transaction should be the result of full and fair deliberation and negotiation by both of our boards and the fully-informed consideration of our respective stockholders.
Independent Board Members Approve Deal
After mulling the deal over, “the independent members of the Tesla and SolarCity boards of directors approved this transaction,” Tesla said in a press release on August 1, 2016. As part of its press release announcing the approval of the merger by the independent members of the boards of each company, Tesla said:
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.
FTC’s Early Termination Approval Goes a Long Way to Solidifying Deal
While the deal has been announced and approved by the independent members of the Tesla and SolarCity boards, it still must clear a shareholder vote before it can become final. However, the FTC’s quick approval largely removes any fears of litigation over the proposed merger, whether by the FTC or DOJ.
HSR Premerger Notification Process
Under the Hart-Scott-Rodino Act, “parties to certain proposed transactions must submit premerger notification to the FTC and DOJ.” Whether a transaction is subject to the premerger notification process depends on certain factors, including whether the either party to the transaction is engaged in commerce, the size of the transaction, and the size of the companies to the transaction.
The premerger notification process involves completing an HSR Form, referred to as a “Notification and Report Form for Certain Mergers and Acquisitions,” which provides the FTC and DOJ with information about each company’s business. Once the HSR form is completed and submitted to the FTC and DOJ, the company’s must wait for a certain period of time before they can consummate their proposed merger.
Early Termination under the HSR
However, as part of the premerger notification process, a proposed merger may be granted early termination, which means the FTC and DOJ do not intend to seek further information regarding the merger. Early termination also generally means that the merging companies are out of the woods as it relates to any antitrust actions that may be filed by the FTC or DOJ. Even still, the proposed merger must still pass muster with the Securities and Exchange Commission, before final approval of the deal may be reached.
FTC Approves Amendments to HSR Premerger Notification Process
While not applicable to the proposed Tesla/SolarCity merger, the FTC announced late last week that it had approved amendments to the HSR, which attempt to streamline the premerger notification process. The proposed amendments “allow HSR filings to be submitted on DVD and streamline the instructions to the Premerger Notification Form,” the FTC says.
Is the Proposed Merger Good for Tesla Shareholders?
While it remains to be seen whether the deal will ultimately be approved by Tesla and SolarCity shareholders, some have questioned whether Tesla investors are getting a raw deal. In early 2016, SolarCity’s stock was downgraded by Barclay’s and JP Morgan. By June, there was talk that SolarCity was in trouble of declaring bankruptcy, which many say prompted Elon Musk to act to save the solar company. Thus, the question is whether the merger is more of a bailout than a purchase.
The FTC’s Approval of the Proposed Merger May Not End FTC’s Involvement with Tesla and SolarCity
Beyond taking on the financial woes presented by SolarCity, Tesla shareholders may also be taking potential regulatory liability. In the past year or so, the FTC has taken aim at the solar industry as a whole. In June of this year, the FTC hosted a workshop regarding the solar industry, titled, “Something New Under the Sun,” which “explore[d] competition and consumer protection issues that may arise when consumers generate their own electric power by installing home solar photovoltaic (PV) panels – a practice known as solar distributed generation (DG).” Given the FTC’s interest in the solar industry, the FTC’s approval of the merger may not be the end of its involvement with the merging companies.
* Photo Cred.: microgridmedia.com