- Google Finance
Stocks fell slightly on Wednesday as markets anxiously await Thursday’s referendum in the UK on whether the nation will remain a member of the European Union or vote to begin the process to leave.
Dow: 17,780.8, -48.9, (-0.3%) S&P 500: 2,085.5, -3.5, (-0.2%) Nasdaq: 4,833.3, -10.4, (-0.2%) WTI crude oil: $49.10, -1.4% 10-year Treasury: 1.68%
Tesla, SolarCity, Elon Musk
So, um, here’s a thing (emphasis mine):
Dear [SolarCity CEO Lyndon Rive]:
We are pleased to submit to you and the SolarCity board of directors a proposal to acquire all of the outstanding shares of common stock of SolarCity in exchange for Tesla common shares. Subject to completing due diligence, we propose an 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.
We believe that our proposal offers fair and compelling value for SolarCity and its stockholders, while also giving SolarCity’s stockholders the opportunity to receive Tesla common stock at a premium exchange ratio and the opportunity to participate in the success of the combined company through their ongoing ownership of Tesla stock.
Tesla is run by Elon Musk, who is the chairman and co-founder of SolarCity. Musk also owns the private space exploration company SpaceX. This is the “Muskiverse.”
Musk said he and Antonio Gracias, who sit on the boards of both Tesla and SolarCity, will not vote on the proposed acquisition due to their obvious conflicts of interest, though presumably both are excited about it and would like shareholders to approve the deal. The market, however, was not that excited.
Tesla shares fell more than 10% following the news, and while the implied value of SolarCity shares in this deal equated to a roughly 25%(ish) premium, shares of the company gained less than 4% on Wednesday. In other words, Tesla shares were down on a market cap-basis more than the entire value of SolarCity. This is rare for a merger.
There are many catches here, not the least of which is that the proposed acquisition would be an all-stock transaction, which is the sort of thing that always raises eyebrows. If your company’s stock trades freely in the open market it is a sort of currency. It has value you can use to do things like compensate employees. But when you use this proof as a replacement for money in an expensive transaction, people tend to ask why you didn’t, you know, use real money. And so on.
Analysts on Wall Street, we’d note, were sort of mixed but generally skeptical, considering Tesla and SolarCity are both bleeding cash. Or as Barclays analyst Brian Johnson wrote in a note to clients, “Little in the way of synergies, much in the way of cash burn.”
Elon Musk, as you’d expect, was very excited about the deal and on a conference call Wednesday, Musk said the combined entity would be a $1 trillion company one day, or about $300 billion bigger than Apple was at its peak a few months ago.
This acquisition also represents something like a pivot for Tesla, which for a while seemed focused on selling cars but now seems focused on being a power company.
Short-seller Jim Chanos called this proposed deal “brazen,” adding that it is, “shameful example of corporate governance at its worst.” He also described this as a bailout for SolarCity.
The vote is on Thursday.
The British pound was slightly stronger but little-changed against the dollar on Wednesday.
On a Facebook Live broadcast with Kara Swisher on Wednesday afternoon, CNBC’s Jim Cramer said that he’s been buying properties just to rent them on Airbnb.
Cramer called the money you get from renting out units on Airbnb a real estate dividend, which is roughly true – I mean, there’s the mortgage, upkeep and so on, costs that are certainly bigger than what it costs to hold a financial asset but either way – but more interestingly brings up a tension around what Airbnb is really for. Or rather what it really does.
Airbnb likes to market itself as a way for financially-stretched city-dwellers to make a little bit of money. Many lease agreements in urban apartments prohibit you from renting an apartment from a landlord and then just re-renting that same apartment to Airbnb guests, but a few days here and there while you, the lease-signing tenant, are still present aren’t a huge deal.
The problem is when buildings not zoned for commercial use but residential use are purchased with the rooms then rented out on Airbnb, which to me seems like commercial use. Alternatively, people could just break the terms of their lease by renting an apartment on Airbnb and hoping their landlord doesn’t notice.
Another upshot of Cramer’s comment that buying properties to rent them on Airbnb addresses in the rent-seeking nature of the service that, again, I think began as something designed for more supplemental purposes.
Where you create opportunities for rents to be captured, rent-seekers will go.