Predicting whether TSLA-SCTY merger will go through

[neroden]

The odds that it settles in that range are very high. As a preliminary letter, they said very few things in the offer to merge -- the one specific thing they did say was a *range of exchange rates*, and so that's the one thing which I think constitutes an actual, legal offer. I don't think TSLA can actually revoke that offer and come back with a lower offer, unless they cancel it based on something discovred during due diligence. I suppose SCTY board could refuse the offer and demand a better exchange rate, but that also seems unlikely.

Well, I may be totally wrong, but I decided that the deal was going to go through, the market was mistaken about thinking it won't go through, and I made an arbitrage-based purchase of SCTY to get TSLA cheap. FWIW SCTY is *harder* to short than TSLA right now.

It's possible that the flood of shorts into TSLA in the last few days are actually former SCTY shorts who think the merger will go through and realized that TSLA is easier to short. This doesn't explain the continuing enormous short interest in SCTY, even after the borrowing costs for SCTY reached outrageous levels.

 

[Jack6591]

The merger dovetails with Musk's "Secret Master Plan". A vote against the merger would like Musk losing a confidence vote. That would be very bad mojo.

 

[neroden]

I suppose we should watch to see if there's a large increase in borrowing for purposes other than short interest, i.e. someone borrowing the stock in order to vote it. But how would we tell?

 

[jhm]

Thanks, Neroden. I guess with Tesla at $214.44, SolarCity should be in range of $26.16 to $28.09. As it is, SolarCity stands at $24.08. Looks like a good deal to me.

Some SolarCity investors have been concerned that the stock is temporarily undervalued by the market and Tesla is taking advantage of that. However, I think both stocks are currently undervalued. The combination may represent the best ticket for realizing the value of both companies.

 

[neroden]

I suppose we should watch to see if there's a large increase in borrowing for purposes other than short interest, i.e. someone borrowing the stock in order to vote it. But how would we tell?

This is actually a thing, by the way. Though I don't know of a case since the 19th century. It's worth trying to see whether we can tell if this is happening. This is perhaps the only scenario I can see for the merger failing the vote. You can't do this as a retail investor (borrowing to hold and vote is not offered as an option at brokerages) so it would have to be a big player who was actively trying to tank the merger and willing to pay interest to do so. I don't think this is likely, but it's worth trying to see how we would tell if this was happening.

 

[yesla]

The offer was made on June 21. When will we get more information/clarification on the deal?

I realize im not really asking anyone in particular. But thatd be a nice to know.

 

[neroden]

The offer was made on June 21. When will we get more information/clarification on the deal?

They claimed that they'd complete due diligence in "two to three weeks", so I'd look for information to come out on July 21st (adding an extra week to account for Musk optimism).

 

[Peter Egan]

The odds that it settles in that range are very high.

lets hope the merger goes through. Tesla has the stores to sell cars, powerwalls and accessories. Displaying a few solar panels is easy. Solar panels and powerwalls can be sold via the same installer. But the trick will be to sell industrial scale solar and energy storage. Hydro pumped storage is relative cheap but not easily located or incrementally added to. Industrial scale solar and storage are a great match as the size of the power cables can be reduced if the plant takes on a baseload style role. Infact, every industrial solar panel could come with its own battery storage - the cabling cost and the cost of transformers can be reduced. Each 1 square metre solar panel could come with its own 0.5 kWh battery cell which would weigh about 2 kg.

 

[ValueAnalyst]

There wasn't a topic specifically for this.

Someone who *isn't* one of the usual suspects at Seeking Alpha (ValueAnalyst) has made an interesting analysis of the voters:
http://seekingalpha.com/article/3983611-tesla-solarcity-3-interesting-facts
http://seekingalpha.com/article/3984592-tesla-sale

He notes 45% of TSLA stockholders own SCTY and concludes that the deal will pass. His math is wrong, so I'm redoing it.

Musk has 21.1% of the stock:
(Citation: Tesla’s SolarCity deal gets support from shareholders and hate from people who don’t own the stock )

Gracias has 0.18%, Straubel has 0.17%, Kimball Musk has 0.10%.
(Citation: Who Are the Top 4 Tesla (TSLA) Shareholders? )

So 21.55% of shares are not being voted, leaving 78.45% to be voted. This means 39.255% is needed to win.

The 45% of TSLA stockholders who own SCTY includes Musk (21.1%) and Fidelity (11.1%), meaning it's only 12.8% of the "other" stockholders. (This includes Bank of Montreal at 3.1%. I'm assuming it doesn't include Bailie Gifford, since they own only a token amount of SCTY -- if it does, my calculations are way off.)

Fidelity + the "other" stockholders who own SCTY is then 23.9%. If Bailie Gifford (8.1%) and T Rowe Price (5%) support the deal, that's only 37%. This is not quite a majority, contrary to the statement of ValueAnalyst, but it is pretty close. I think winning the support of 2.25% more of the TSLA stockholders (4.1% of those who do not hold SCTY) is not going to be that hard.

Even if Bailie Gifford and T Rowe Price vote no, it would still only require support of 15.35% more of TSLA stock -- which is to say, 28% of those shareholders who own TSLA and do not own SCTY. It does seem very likely to go through, though a strong statement of opposition from Bailie Gifford could change stockholders' opinion.

I still hope that Musk will provide a realistic plan for refinancing SCTY's debt and getting out of the financing business, which would *really* make the deal a no-brainer.

Based on this article, I believe James Anderson at Bailie Gifford is probably going to make Musk present a refinancing plan, since he warned of the threat of a capital market freeze for Tesla: Tesla's SolarCity bid worries Baillie Gifford's Anderson

There wasn't a topic specifically for this.

Someone who *isn't* one of the usual suspects at Seeking Alpha (ValueAnalyst) has made an interesting analysis of the voters:
http://seekingalpha.com/article/3983611-tesla-solarcity-3-interesting-facts
http://seekingalpha.com/article/3984592-tesla-sale

He notes 45% of TSLA stockholders own SCTY and concludes that the deal will pass. His math is wrong, so I'm redoing it.

Musk has 21.1% of the stock:
(Citation: Tesla’s SolarCity deal gets support from shareholders and hate from people who don’t own the stock )

Gracias has 0.18%, Straubel has 0.17%, Kimball Musk has 0.10%.
(Citation: Who Are the Top 4 Tesla (TSLA) Shareholders? )

So 21.55% of shares are not being voted, leaving 78.45% to be voted. This means 39.255% is needed to win.

The 45% of TSLA stockholders who own SCTY includes Musk (21.1%) and Fidelity (11.1%), meaning it's only 12.8% of the "other" stockholders. (This includes Bank of Montreal at 3.1%. I'm assuming it doesn't include Bailie Gifford, since they own only a token amount of SCTY -- if it does, my calculations are way off.)

Fidelity + the "other" stockholders who own SCTY is then 23.9%. If Bailie Gifford (8.1%) and T Rowe Price (5%) support the deal, that's only 37%. This is not quite a majority, contrary to the statement of ValueAnalyst, but it is pretty close. I think winning the support of 2.25% more of the TSLA stockholders (4.1% of those who do not hold SCTY) is not going to be that hard.

Even if Bailie Gifford and T Rowe Price vote no, it would still only require support of 15.35% more of TSLA stock -- which is to say, 28% of those shareholders who own TSLA and do not own SCTY. It does seem very likely to go through, though a strong statement of opposition from Bailie Gifford could change stockholders' opinion.

I still hope that Musk will provide a realistic plan for refinancing SCTY's debt and getting out of the financing business, which would *really* make the deal a no-brainer.

Based on this article, I believe James Anderson at Bailie Gifford is probably going to make Musk present a refinancing plan, since he warned of the threat of a capital market freeze for Tesla: Tesla's SolarCity bid worries Baillie Gifford's Anderson

My math is never wrong. I wrote this piece BEFORE all the sell-side analysts jumped on board pointing to the ownership structure. And the transaction eventually closed, quicker than any other transaction I have ever seen. And I have seen many.

 

[AudubonB]

...and



1. Hubris

&

2. The need for fewer threads being far greater than the need for outdated ones to be exhumed

means this thread now is closed.