Daily Management Review

Signs of Support for Musk's SolarCity Deal Emerge behind Tesla Carnage


06/23/2016




Signs of Support for Musk's SolarCity Deal Emerge behind Tesla Carnage
Even though more than the $2.8 billion value of the proposed deal off Tesla's market capitalization was chopped off as Tesla Motor Inc.’s shares fell a day ago on news of the takeover of solar power company SolarCity Corp, some of the US electric car maker’s biggest investors have signaled support for CEO Elon Musk's plan for the acquisition.
 
“It’s a natural evolution of their mission to transform transportation into a sustainable business,” said Joe Dennison, a portfolio manager of Zevenbergen Capital Investments, which has about 600,000 Tesla shares, or about 0.4 percent of shares outstanding.
 
"We expect it to go through and believe that most investors who actually own the stock understand management's long-term vision for the company," he said while adding that the deal was still early in the process.
 
However this was not how many investors reacted to the news a day ago as the company saw more than $3 billion off its market value chopped off after Tesla’s shares went down by as much as 10 percent leaving the market valuation of the company at around $28.7 billion.
 
For Musk, who is chief executive of Tesla, chair of SolarCity and the biggest shareholder in both companies, this was a blow. Musk is also the CEO of rocket-maker SpaceX.
 
While questioning whether merging two companies which both need substantial cash was a good idea, analysts say that both Musk and the Tesla management risk being distracted from rolling out the new Model 3 sedan, a mass-market electric vehicle key to the success of the young firm.

Allowing the fans of clean energy to buy an electric car, home solar system and battery backup in a single visit is the vision of the audacious entrepreneur. However there are arguments put forward by some that with little crossover, the two firms cater to different groups of customers.
 
Institutional shareholders had some idea of the plan, Musk said in a hastily arranged call with investors and Wall Street analysts where Tesla executives defended the deal.
 
Over the years, "this idea has been bandied about with some of our largest shareholders, institutional shareholders. Yeah, there have been discussions," Musk said.
 
In comments earlier this year, the tie up was praised by the manager of the second largest mutual fund investor in Tesla, the $12 billion Fidelity OTC Portfolio which is also the largest institutional holder of SolarCity.
 
"We remain fans not just of Tesla products, but of the concepts and potential future partnerships behind the company. We foresee fruitful synergies between say, Tesla and SolarCity – or any company that can benefit from superior battery technology," Gavin Baker, who runs the Fidelity OTC fund, said in his first-quarter commentary for investors. It owns 2.1 percent of shares.
 
A person familiar with the matter said that overall, 45 percent of Tesla shareholders also hold SolarCity stock.
 
Baker and Will Danoff have said that they tend to give more leeway to founder-run companies which they believe are still in the early stages of growth. Baker and Will Danoff runs the $100 billion-plus Fidelity Contrafund, the largest mutual fund investor in Tesla with 3.5 percent of stock.
 
(Source:www.reuters.com) 






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