Influential advisory firm, Institutional Shareholder Services (ISS), has given its clients the go-ahead to back the proposed Tesla-SolarCity merger. The announcement came as the SolarCity shareholders’ vote on November 17 approaches quickly. ISS offered three reasons why SolarCity will ultimately benefit shareholders.
The proposed merger is a $2.3 billion deal.
Critics have voiced concerns that the Tesla/ SolarCity merger amounts to little more than a bailout of a family business, as Musk’s cousins, Lyndon and Peter Rive, head SolarCity. Moreover, SolarCity’s overall financial picture has weakened as the company assumed $3.1 billion in debt to support its investments. Additionally, independent solar companies face many challenges, including an inability to produce adequate energy efficiency. Philip Shen with ROTH Capital Partners noted during a recent Q&A with Tesla and SolarCity executives that a number of companies have tried to pursue solar shingles in the past without success. Roth named Dow and Energy Conversion Devices as two companies who attempted to enter the solar shingle market but have “come and gone.”
The Tesla/ SolarCity merger is a necessary step in Tesla’s quest to become an integrated sustainable energy company. ISS affirmed that Tesla’s status as a $30 billion company without debt should have the wherewithal to reinforce gaps that should emerge within SolarCity’s financial architecture. These recommendations from ISS confer significant weight among the larger mutual funds, many of which make up Tesla’s independent shareholders. Musk has stated that the merger of the two companies is a “no-brainer.”
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