Investor's Corner

SolarCity appoints two-person committee to consider Tesla bid

Elon Musk shocked the investment community last week when he suggested that Tesla Motors should purchase SolarCity for $2.8 billion in Tesla stock. Most people on Wall Street have taken a rather dim view of the proposal. Brooke Crothers, writing for Forbes, says his inbox has been crammed with e-mails this week referring to Musk as “deluded”, “deranged,” and worse.

The biggest problem with the deal so far is that the officers and directors of both companies are often the same people. Musk is chairman of both boards. His cousins Lyndon Rive and Peter Rive are CEO and CTO of SolarCity, respectively. By the time all the conflicts were revealed and accounted for, there were few left at SolarCity who could look at the Tesla offer independently.

Musk, his two cousins, Tesla board member Antonio Gracias, and Tesla CTO JB Straubel have all recused themselves. John Fischer, who is a partner in Tesla and Solar City investor Draper Fisher Ventures, has not officially recused himself.

Donald Kendall and Nancy Pfund have now been appointed a committee of two to investigate the offer and make recommendations to the SolarCity board whether to accept or reject the offer from Tesla. Kendall is the CEO of investment management firm Kenmont Solutions Capital. He is the only person on the SolarCity board without a direct connection to Tesla. Nancy Pfund is the founder and managing partner of DBL Investors, which invested in Tesla and served on its board before the company went public.

The financial considerations are peculiar, since both companies currently operate at a loss. Kendall and Pfund will have the burden of considering whether the Tesla offer is good for SolarCity, not just Elon Musk.

In a hastily arranged conference call with investors last week, Musk explained his reasons for the offer. “I think the tide of history very strongly supports [that] it will be a sustainable energy future, primarily solar and virtually entirely electric vehicles and maybe things that temporarily interrupt that tide of history, but long-term it will overwhelm everything. And our goal is to accelerate the advent of that future as fast as possible, and this helps us accelerate it. So, that’s the reason.”

Now its up to Kendall and Pfund to decide if that is reason enough.

Source: CNBC

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