Investors who are betting that Tesla Motors Inc’s bid to buy the solar panel company SolarCity Corp will succeed received encouragement on Friday after an influential shareholder adviser blessed the union of the two.
The advisory firm, Institutional Shareholder Services (ISS), said Tesla shareholders should back the deal on three counts.
The first is that buying SolarCity would help Tesla chief executive officer Elon Musk turn the firm into a green-energy company, whose products would range from solar panels to electric cars.
The adviser’s second rationale is that the estimated US$150 million in cost savings that would arise from a merger of the two could eventually yield US$1.5 billion when capitalized, taking care of two-thirds of the purchase price.
The last is a starker calculation of dollars and cents: Tesla would be buying SolarCity at a cheap price.
Tesla has offered to pay 0.11 of a newly issued share in itself for each share of SolarCity, a bid valued at US$20.99 as of Friday afternoon.
That is lower than where SolarCity was trading this summer when Musk announced his deal intentions.
Musk has said that putting the two together is a “no-brainer” from a strategic standpoint.
However, critics have argued that the deal amounts to a bailout of SolarCity, whose fortunes and stock price have declined as the company has run up US$3.1 billion in debt to support its business.
Investors have also become pessimistic about the fate of independent solar companies. Competitors such as SunEdison Inc have filed for bankruptcy.
ISS said Tesla, as a US$30 billion company with no debt, should be able to support its corporate sibling, although at a potentially high financing cost.
The backing of ISS could prove important to swaying Tesla shareholders, because the firm’s recommendations carry great weight among the big mutual funds that make up the electric automaker’s independent shareholders.
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