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Gordon Johnson Warns Of 'Burgeoning Risk' To SolarCity/Tesla Deal Closure

SCTY, Tesla Motors, Inc. NASDAQ:TSLA - Gordon Johnson Warns Of 'Burgeoning Risk' To SolarCity/Tesla Deal Closure

The joint Form S-4, filed by SolarCity Corp SCTY and Tesla Motors Inc TSLA, suggests that Tesla Motors “failed to consider whether another solar company was a “better fit”.” Axiom’s Gordon L. Johnson II maintained a Sell rating on SolarCity, with a $7 price target.

“With a number of solar vendors available currently, at arguably depressed prices, we blv SCTY’s & TSLA’s joint Form S-4 filing shows TSLA failed to consider if any other solar companies offered more favorable synergies,” Johnson explained.

As evidence of this, the analyst mentioned that after Tesla’s board approved the SolarCity merger offer, Evercore had been brought in. Following about three weeks of due diligence, Evercore declared SolarCity was “the most attractive asset for Tesla in the solar energy industry.”

Risk To Deal

However, Evercore didn't received SolarCity’s financials, including the company’s cash position, financial results and financing needs almost three weeks after it had provided its opinion in favor of the merger.

In addition, while SolarCity had received at least three possible counter offers in July, none of the potential acquirers were willing to counter Tesla’s offer.

“Armed w/ this info, we blv TSLA shareholders are incrementally less inclined to vote yes for this deal before the current 4/30/17 “cutoff date”,” Johnson stated.

The analyst believes there is only a 50/50 chance that the deal would close successfully.

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DateFirmActionFromTo
Aug 2016Raymond JamesDowngradesStrong BuyMarket Perform
Aug 2016BairdDowngradesOutperformNeutral
Aug 2016Guggenheim SecuritiesDowngradesBuyNeutral

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