SolarCity entertained seven other companies before agreeing to merge with sister company Tesla, reports Fortune writer Jen Wieczner. Many believed this recent merger between the two energy companies could potentially pose many conflicts of interest, considering that Tesla CEO Elon Musk is both the chairman of SolarCity and first cousin of the company’s CEO Lyndon Rive.
A regulatory filing of the play-by-play of board room discussions was released about a month after the two energy companies closed the deal. Fortune pinpointed 5 key findings that are surprising regarding the merge. Wieczner writes:
1. Tesla’s Board At First Didn’t Even Want to Consider Buying SolarCity: The plan to merge Tesla and SolarCity came out of a seemingly casual conversation in February between Musk and his cousin Rive in which Musk “suggested” that they undertake “a more serious consideration” of a deal.
2. SolarCity Entertained 7 Other Suitors Besides Tesla: Indeed, between when Tesla made its initial proposal and when SolarCity ultimately accepted it, SolarCity’s bankers contacted six potential “strategic counterparties” to see whether they might want to buy the company—including Party A and Party B. They also contacted the private equity firm “Party C”—the seventh suitor—about a possible buyout of or investment in SolarCity.
3. SolarCity Was Getting Desperate for Money During the Deal Talks: By early July, SolarCity had noticed that some of its lenders “appeared to be delaying funding” of the company’s projects and other financing, attributing the problem directly to “the announcement of the Tesla proposal.” The publicity of the offer had “negatively impacted” SolarCity’s ability to tap the market to raise cash, and SolarCity’s liquidity dried up.
4. SolarCity Was Worried Tesla’s Stock Might Fall Too Much: SolarCity wanted an out clause in the agreement if Tesla’s stock fell below $175 per share before the deal closed. Such a provision would offer SolarCity a valuable protection: After all, Tesla would be paying completely in stock to acquire it.
5. SolarCity’s Bankers Made a $400 Million Error—and Tesla Didn’t Notice: The companies noted in the filing that SolarCity’s advisors at Lazard had made a “computational error” in the financial documents to Tesla, in which they “double-counted” $400 million worth of SolarCity’s debt, overstating the company’s actual $3.4 billion in debt by nearly 12%. They had mistakenly estimated that SolarCity was worth about $15 to $34 per share; the same analysis with the correct debt figures valued SolarCity at $19 to $38 per share.