To answer the rising chorus of criticism, SolarCity Corp. said on Monday it has formed a special committee to evaluate Tesla Motors Inc.’s $2.8 billion takeover offer by Tesla.
To show that everyone involved is a little tone deaf to the chorus, there are only two people on the committee. Tesla and SolarCity are so entertwined that five members of the board recused themselves from serving on the committee due to conflicts.
Even still, one member of the committee, Nancy Pfund, has ties to both companies. The committee will evaluate the offer and “a broad range of strategic alternatives,” the top U.S. solar panel company said in a statement.
SolarCity independent directors Donald Kendall and Pfund comprise the committee. Kendall is the chief executive of investment management firm Kenmont and is the only member of SolarCity’s board with no direct ties to Tesla or Musk.
Pfund is a venture capitalist whose firm, DBL Partners, has invested in SolarCity, Tesla and SpaceX.
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Five of SolarCity’s eight board members that recused themselves include SolarCity founders Lyndon and Peter Rive, the company’s CEO and chief technology officer, who also are Musk’s first cousins. Musk serves as the chairman of both firms.
Musk said last week that by acquiring SolarCity, the two companies would form a one-stop clean energy shop, offering consumers solar panels, home battery storage and electric cars under a single trusted brand.
Investors, however, have been less than impressed with the deal and Tesla lost 13% of its market capitalization after Musk’s announcement of the SolarCity acquisition. The sell-off cost Tesla more than the $2.8 billion it has proposed paying for SolarCity.
Earlier Musk’s third major venture, Space X, which is building a rocket ship that can carry payloads into earth orbit and return, also invested in SolarCity bonds, according to Reuters News Agency.
Oppenheimer & Co. analyst Colin Rusch downgraded the stock and said he believed investors were likely to view the proposed bid as a “bailout” and a “distraction” to Tesla’s own production hurdles – such as fulfilling the massive pre-order demand for the upcoming Model 3, according to the Los Angeles Times.
“While we remain bulls on the solar industry, we do not view this acquisition as the best and highest use of [Tesla’s] capital and human resources,” Rusch wrote in a note to clients.
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Investors and analysts also note that Musk is the chairman and the top shareholder at both companies. He owns 21% of Tesla and 22% of SolarCity and is cousins with SolarCity’s chief executive and its chief technology officer.
The latest plan is a clear conflict of interest due to Musk’s position on both boards and his leading share ownership of both companies, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, the Los Angeles Times reported in its weekly California Inc. newsletter.
“You’re supposed to get the best deal for the company on whose board you sit, but if you’re on both how does that work?” Elson said. “The bottom line is that investors of one company or the other will lose in the transaction,” the Times reported.
“The proposed acquisition of SolarCity by Tesla, raises higher risks than it creates benefits for the company,” analysts from BMI Research noted this week.
“The timing of the deal and SolarCity’s precarious financial position, however, raise the risks for Tesla as it moves into a critical point in its product cycle with the release of its mass-market Model 3 electric vehicle. These risks, we believe, outweigh the benefits,” BMI noted in research noted that also stressed the deal’s upside potential.
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“On a positive side, the acquisition will offer Tesla a chance to differentiate itself away from today’s automaker competitors by painting itself as the better provider of ‘energy innovation’ solutions rather than just ‘mobility solutions’ leading to a strong boost to its brand image and loyalty. It will also allow Tesla to boost its Powerwall product sales by creating opportunities to bundle its household battery storage products with solar products,” BMI noted.