So this week gave us Brexit chaos in the markets, which everyone and their cousin is already writing about, so I'm going to leave that alone except to say: yeah, it was ugly, my brokerage app looked like a crime scene on Friday. What I actually want to talk about is a smaller story that got buried under all that noise, and it's been bugging me since Tuesday.
Tesla's board put out an offer to buy SolarCity. All-stock deal, somewhere in the range of $2.5 to $3 billion depending on how you read the exchange ratio they published (0.122 to 0.131 Tesla shares per SolarCity share, if you want the exact numbers). Tesla stock dropped something like 10% the day it was announced. SolarCity popped, obviously, because that's what happens when someone offers to buy your company at a premium.
Here's the thing nobody at either company seems to want to say out loud: Elon Musk is chairman of both. He's the largest shareholder in both. And the CEO of SolarCity, Lyndon Rive, is his cousin. I keep seeing this framed in the coverage as "Tesla's bold vision to combine solar, storage, and cars under one roof," and sure, fine, that's a real product logic if you squint. But SolarCity has been burning cash and drowning in debt covenants for over a year now. Their stock was down something like 60% from its 2014 high before this offer even came out. You don't need a finance degree to look at the timing and go, huh.
I'm not saying there's no strategic case here. Musk's whole "master plan part deux" thing from a few weeks back explicitly mentioned integrating solar and storage with the car business, so this isn't coming out of nowhere. But there's a difference between having a strategic case and having a strategic case that also happens to bail out your relative's company using your other company's stock as currency, right as that company was staring down a liquidity crunch. Both things can be true at once. I think both things are true at once.
Tesla says they've set up a special committee of independent directors to evaluate the deal, which, fine, that's the standard move when a related-party transaction like this shows up. Whether "independent" means much when Musk is still the guy who put most of those people on the board in the first place is a separate question, and one I don't think gets asked enough. Anyway.
A small tangent, because I can't help myself
Two summers ago I actually had a SolarCity rep knock on my door. Twice, actually, same guy, a few weeks apart, like he forgot he'd already been rejected. Very nice, very persistent, brought a tablet with a slick little savings calculator on it. I never went through with it (my roof faces the wrong way for it to make much sense, according to a different, more honest quote I got later), but I remember thinking their whole sales model was aggressive in a way that felt more like a subscription service than a home improvement company. Which, in hindsight, tracks with a company that needed to keep growing installs no matter what to keep the financing machine running.
The other thing worth mentioning is how this lands for regular Tesla shareholders, the ones who bought in because they wanted exposure to electric cars and Autopilot and the Gigafactory, not because they wanted a stake in a residential solar leasing company with a shaky balance sheet. If you're one of those people, this week probably felt like getting handed a bill you didn't order. I don't think this deal is dead on arrival, not with how much sway Musk carries with his own shareholder base, but I'd be surprised if it closes without a fight from somebody. Watching the proxy filings on this one is going to be more interesting than it has any right to be.
Markets reopen Monday. Between this and the pound doing whatever the pound is doing right now, it should be a fun one to watch from the sidelines with coffee instead of money on the line.