Tesla Motors Inc. disclosed in a regulatory filing Monday that
its proposed merger with SolarCity Corp. could be delayed by
shareholder lawsuits, adding to the volatility for cash-strapped
SolarCity, which is selling assets and cutting costs as it seeks to
survive until the deal can close.
The lawsuits, filed by two individuals and two pension funds
earlier this month, claim that the members of the Tesla board
breached their fiduciary duties in connection with the proposed
merger, and that certain insiders would be unjustly enriched by the
companies' combination, according to a regulatory document Tesla
filed Monday.
SolarCity is chaired by Elon Musk, Tesla's chief executive, who
owns about 20% of the shares in both companies.
It was unclear whether the lawsuits might delay Tesla's planned
shareholder vote on the merger, which the company had earlier said
it planned to schedule this week. The plaintiffs are the City of
Riviera Beach Police Pension Fund, the Arkansas Teacher Retirement
System, Ellen Prasinos and P. Evan Stephens.
"Simply because someone uses litigation to try to delay an
acquisition does not mean it will be successful," Tesla said in an
emailed statement. "At this point, it is not yet known if anyone
will even end up pursuing such a request. If anyone does, Tesla
will oppose it."
SolarCity shares have plummeted by two-thirds this year and
closed Friday at $17.50—a significant discount to the implied price
of about $22 a share of its $2.4 billion deal with Tesla—as some
analysts question whether the transaction will happen.
The home solar-panel installer has lost money each year since it
went public in December 2012, and its sales and other costs have
consistently outpaced its revenue. It spent $438 million on sales,
administrative and research costs this year through June, about 42%
more than revenue. It was down to $146 million in unrestricted cash
as of June 30, from $362 million at the end of March.
As it seeks to survive as a stand-alone company until its merger
with Tesla—and possibly beyond if the deal doesn't go
through—SolarCity is selling more solar panels to homeowners for
cash, rather than its traditional business model of leasing the
panels and retaining ownership.
It is planning to sell more shares in solar panels it owns to
other investors, as it did earlier this month when it raised $305
million in a cash equity transaction with Quantum Strategic
Partners Ltd., the hedge fund of billionaire investor George Soros.
And it has laid off employees and contractors, shut sales offices
and overhauled its sales and marketing department, said SolarCity
Chief Executive Lyndon Rive.
"Our cash balance at the end of Q3 will be higher than the end
of Q2, and our end-of-Q4 cash balance is scheduled to be higher
than the end of Q3," Mr. Rive said in an interview last week, prior
to Tesla's regulatory filing. The company declined to say how many
people it had let go, or how much it hoped to raise in asset
sales.
SolarCity is currently selling about 30% of the panels it
installs on home rooftops for cash, up from 10% earlier this year
and less than 5% last year. It aims to boost that number to half or
more by the end of this year.
The company's strategy to sell more panels for cash "will
generate a larger amount up front to fund the growth and working
capital the company needs," Mr. Rive said. A typical six-kilowatt
home solar array sells for about $18,840, on average, according to
GTM Research.
SolarCity's cash crunch comes at a difficult moment for the home
solar industry: some analysts are forecasting that the rapid growth
the sector has enjoyed in recent years is slowing.
Bloomberg New Energy Finance is predicting 0.3% growth in the
home solar market in 2017, blaming a nationwide drop in
conventional power prices and reductions in state solar
incentives.
GTM Research and the Solar Energy Industries Association predict
19% growth next year, down from an expected 23% increase this year
and 66% in 2015.
SolarCity has lowered its forecast for the volume of panels it
plans to install this year to 900 to 1,000 megawatts, down from
1,250 megawatts earlier this year.
Lynn Jurich, Chief Executive of Sunrun Inc., said she expects
the residential solar market will grow at least 20% for the next
several years, driven by falling equipment prices and growing
consumer demand for clean energy.
"That growth rate would be the envy of many industries," she
said.
SolarCity is banking on synergies with Tesla that it believes
will cut its costs. But some analysts are questioning whether the
deal will be completed.
Thomas Burnett, head of research at Wall Street Access, a
brokerage firm that provides research to investors who wager on
mergers and acquisitions, now estimates the odds are "no better
than 50-50," compared with his estimate in July of 80% odds the
deal would be approved.
While SolarCity is focused on completing the deal with Tesla, it
will explore finding another strategic partner if the deal doesn't
pan out , and believes it can find one, said SolarCity board member
Nancy Pfund
"As a leader in a huge market that is growing very quickly,
SolarCity has always been of interest to a lot of different
companies," she said. "People look to SolarCity for leadership and
financing in the distribution solar revolution."
Tim Higgins contributed to this article.
(END) Dow Jones Newswires
September 19, 2016 12:35 ET (16:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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