Merger and Acquisition: Tesla Motors, Inc.- Solar City Corporation

Unit 3: Inventory and Long-term Assets

Merger and Acquisition: Tesla Motors, Inc.- Solar City Corporation

Exhibits can be found on pages 6-10

1. In its Final Prospectus, dated October 12, 2016, Tesla stated:

 

“If the Merger is completed, SolarCity stockholders will have the right to receive 0.110 shares (the “ Exchange Ratio ”) of Tesla Common Stock for each share of SolarCity Common Stock issued and outstanding (except shares held by SolarCity as treasury stock or shares owned by Tesla or Merger Sub), with cash paid in lieu of fractional shares. This Exchange Ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the Merger. Based on the closing price of Tesla Common Stock on the NASDAQ Global Select Stock Market (“ NASDAQ ”) on June 21, 2016, the last full trading day before the public announcement of Tesla’s proposal to acquire SolarCity, the Exchange Ratio represents approximately $24.16 in value for each share of SolarCity Common Stock. Based on the closing price of Tesla Common Stock on NASDAQ on October 10, 2016, the latest practicable date before the date of the enclosed joint proxy statement/prospectus, the Exchange Ratio represents approximately $22.10 in value for each share of SolarCity Common Stock…. We urge you to obtain current market quotations of Tesla and SolarCity Common Stock.”

 

 

 

On Thursday November 10, 2016, the stock price of one share of Tesla is $187.30. What does the Exchange Ratio currently represent as the value of a share of Solar City stock?

 

 

 

 

 

 

 

 

2. Also in its final Prospectus, Tesla stated:

 

“Based on the estimated number of shares of SolarCity Common Stock outstanding on September 23, 2016, the record date for the special meetings, Tesla expects to issue approximately 11,080,333 shares of Tesla Common Stock to SolarCity stockholders in connection with the Merger, which would result in Tesla stockholders owning approximately 93.1% of the Combined Company and former SolarCity stockholders will own approximately 6.9% of the Combined Company upon completion of the Merger.”

 

 

a. Calculate the implied value Tesla will pay for 93% of Solar City stock, using a price of $187.30 per share of Tesla. Round to the nearest million.

 

 

 

 

 

b. Calculate the implied value of 100% of Solar City based on the $187.30 price.

 

 

 

 

 

 

 

 

c. Calculate the implied value of 100% of Solar City based on the Exchange Ratio value of $22.10 per share of SolarCity stock.

 

 

 

 

 

 

 

 

3. Notwithstanding its updated page one statement that it would issue 11,080,333 shares to acquire SolarCity, Tesla has presented this calculation of the purchase price on page 147 of the prospectus. Its other exhibits are based on this price, so we will use $2,326 million as the price in the following questions.

 

The calculation of the estimated purchase price is as follows (in thousands, except for share and per share amounts):