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Tesla merger with SolarCity approved by shareholders

Workers outside the SolarCity facility at RiverBend in Buffalo in December 2015. (Derek Gee/Buffalo News file photo)

After five months of intense scrutiny, the $2.1 billion merger between SolarCity and Tesla Motors won approval Thursday from shareholders at both companies.

The approval, coming in separate votes by shareholders of each company, is a victory for Elon Musk and his vision to create a renewable energy powerhouse, offering electric vehicles, solar panels and the batteries to store power.

"I think your faith will be rewarded," Musk said after announcing the vote during a shareholder meeting Thursday afternoon. "I think there will be some really amazing stuff that comes out" of the deal.

More than 85 percent of Tesla Motors shareholders voted in favor of the merger.

The vote by SolarCity shareholders to approve the merger was the easier of the two hurdles that the deal had to clear, since its failure likely would have led to a further drop by the rooftop solar installer's already battered stock.

The vote by Tesla shareholders was the more divisive vote, with the electric vehicle maker's investors deciding whether to back CEO Elon Musk's vision or to vote against it out of concern that SolarCity would be a drain on the company.

The merger would combine Tesla, the nation's biggest electric car company with SolarCity, the nation’s biggest rooftop solar installer. Musk has said the merger will create a renewable energy powerhouse that can provide integrated products that wouldn't be possible separately.

Late last month, the companies unveiled a new solar roof product that combines solar modules with Tesla's batteries. Musk initially said the solar roof would compete with conventional roofs on price only when factoring in the savings homeowners get from the electricity the solar shingles generate over the life of the roof, prompting estimates that a solar roof could cost upwards of $70,000.

But Musk said Thursday that Tesla believes the solar roof will be able to compete on price simply based on the cost of the roof itself, without factoring in the savings from the electricity it generates.

Critics say the deal is a dubious bid to combine two money-losing companies whose sales depend on government subsidies and that rely on investors for the billions of dollars that each needs to keep operating.

Skeptics also worry that the deal will saddle Tesla with a money-losing, cash-guzzling business that could weigh the company down as it moves ahead with its own ambitious growth plans, including construction of its $5 billion battery gigafactory in Nevada and ramping up production of its more affordable Model 3 sedan.

And investors also raised concerns about the close ties between the two companies. Musk, in addition to being Tesla’s CEO, is SolarCity’s chairman. His cousins, Lyndon and Peter Rive, are SolarCity’s co-founders and hold top executive positions at the company. Lyndon Rive is SolarCity’s CEO, while Peter Rive is the company’s chief technology officer.

The proposed merger combines two companies that haven’t had a profit in five years – and together have more than $6 billion in debt. Both companies also have ambitious plans that will likely require that they raise billions more in new capital – either by selling more stock or issuing debt – in the coming years.

The merger also has high stakes for the Buffalo Niagara region. With SolarCity’s mammoth new factory set to open in 2017 at RiverBend in South Buffalo, a merged Tesla-SolarCity would likely be a stronger owner than a stand-alone SolarCity. The company has promised nearly 1,500 jobs at the $900 million factory and more than 1,400 new jobs supplying or providing services to SolarCity.

Tesla has said it plans to team up with consumer electronics giant Panasonic to make solar modules at the Buffalo plant if the merger is approved, just as it currently partners with Panasonic to produce battery cells at its battery gigafactory. That arrangement, however, is contingent on the merger gaining shareholder approval.

The merger has received mixed reviews from analysts. One investor advisory firm backed the deal. "The transaction is a necessary step toward Tesla's goal of being an integrated sustainable energy company," said the report from Institutional Shareholder Services. "Additionally, it appears reasonable to assume that Tesla is paying a low to no premium to take over SolarCity."

A rival shareholder advisory firm, Glass Lewis & Co., reached the opposite conclusion about the merger.

“We believe non-affiliated Tesla investors should be concerned the proposed tie-up of Tesla and SolarCity mostly amounts to [a] thinly veiled bail-out plan,” the Glass Lewis report said.

Tesla and SolarCity executives earlier this month made their case to investors for supporting the deal, predicting that the solar energy company would generate $500 million in cash for Tesla over three years and that SolarCity’s sales would nearly double to $1 billion.

Under the deal, SolarCity shareholders will receive 0.11 shares of Tesla stock for each SolarCity share they own. Because Tesla’s stock has dropped by about 15 percent since the deal was announced, the value of the deal to SolarCity’s shareholders also has declined to $20.74 per share from $25.37 when the merger agreement was finalized on Aug. 1.

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