BREAKING: Tesla offers to buy SolarCity through a stock swap

Tesla Motors and SolarCity have never been very far apart. Tesla CEO Elon Musk’s cousins Lyndon and Peter Rive founded and run SolarCity, where Musk is chair of the board. To top it off, Tesla Energy is the chosen battery storage system supplier for SolarCity.

Now, the two companies may come even closer together, as yesterday Tesla made a bid to acquire SolarCity through a stock exchange. The company is offering 0.122 to 0.131 shares of Tesla stock for each share of SolarCity common stock, currently representing a value of US$27.50 per share, or around $2.5-$3 billion.

Tesla has proposed a majority vote of shareholders, and Elon Musk and Tesla Director Antonio Gracias plan to recuse themselves for this vote, as will SolarCity CEO Lyndon Rive, who stated in an email that he was "tremendously excited" about the offer. The transaction would also need approval from the boards of both companies, but Tesla states that it does not anticipate significant regulatory or other obstacles in completing the transaction.

Tesla asserts that this would create “the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers”, and that “possibilities for product, service and operational synergies would be substantial”.

It also states that this would enable Tesla and SolarCity to expand their market shares further than either company can do separately. “Because of the shared ideals of the companies and our customers, those who are interested in buying Tesla vehicles or Powerwalls are naturally interested in going solar, and the reverse is true as well,” read Tesla’s blog post announcing the proposed acquisition. “When brought together by the high foot traffic that is drawn to Tesla’s stores, everyone should benefit.”

SolarCity is the clear leader in the U.S. residential sector, with a roughly 1/3 share of all sales by capacity. During Q1 the company’s leading position in the commercial and industrial sector slipped, as Connecticut-based Greenskies Renewable Energy was able to deploy more solar PV. However, analysts note that Q1 is typically slow for SolarCity.

Market reaction has been mixed. Tesla’s shares have fallen from $220 to $190 per share in after-hours trading, whereas SolarCity’s share price jumped from $21 to $25 per share.