We Predicted Tesla Motors Inc Would Buy SolarCity…7 Months Ago

Tesla Motors IncHuge News for TSLA Stock and SCTY Stock

Elon Musk, the famous CEO of Tesla Motors Inc (NASDAQ:TSLA), also happens to be chairman of another public company: SolarCity Corp (NASDAQ:SCTY). Seven months ago we suggested he should merge the two companies…

…and now he plans to do exactly that. Musk just sent a letter to the CEO of SolarCity (also his cousin) offering a spectacular buyout. It would be a stock-for-stock deal, meaning that SCTY stock shareholders would automatically get a stake in Tesla.

The offer values each SolarCity share somewhere between $26.50 and $28.50.

Considering that SCTY stock was hovering at $21.10 before the news broke, that would mean the stock has 35.07% upside potential! No wonder SCTY’s share price immediately jumped 18.36% to $25.06 (at the time of writing).

SolarCity’s CEO, Lyndon Rive, hasn’t responded to the letter, yet the markets are already anticipating his response. After all, Elon Musk is the chairman of SolarCity, not to mention he’s also Rive’s cousin. But the deal still has to be approved by a majority of board members.

Musk said in the letter that he won’t take part in the vote owing to the obvious conflict of interest. However, regardless of his absence, the deal seems like a no-brainer. SCTY stockholders would have a guaranteed return if they accept and only uncertainty if they refuse. Tesla’s board of directors already approved the deal.

Musk also recused himself from that vote. In a press call with some reporters, he said that Tesla and SolarCity have such obvious overlaps that it made complete sense to merge the companies. He’s been thinking about it for years apparently.

I saw those same overlaps last year. Here’s what I wrote then:

“I hate the word ‘synergy’ but it really does apply to SolarCity and Tesla,” I wrote in November 2015. “Elon Musk could make both companies more profitable by integrating their product lines.” (Source: “SCTY Stock: Elon Musk Should Merge SolarCity Corporation and Tesla Motors, Inc.,” Profit Confidential, November 25, 2015.)

At the time, that was considered a bold speculation, but it turned out to be true.

Elon Musk was thinking along exactly the same lines as me. In the letter to SolarCity’s CEO, he wrote, “We believe that the possibilities for product, service and operational synergies would be substantial.” (Source: “Tesla Makes Offer to Acquire SolarCity,” Tesla Motors Inc Blog, June 21, 2016; emphasis added.)

However, the deal may have a negative effect on Tesla stock. The firm’s share price fell 11.98% in afterhours trading. It’s currently trading at $193.30 per share.