Wednesday, June 22, 2016

More On SolarCity/Tesla and Fairness Opinions (SCTY; TSLA)

Credit where credit is due.
Looking at the twitter timestamp, this writer was quite a few steps ahead of yours truly in thinking of the exchange ratio, a topic of intense interest to a vanishingly small subset of humanity but actually quite important.*

From FT Alphaville:

Tesla/Solar City: An exchange of ideas

Sorry investment banking analyst, you are going to have work this weekend. As the press release explaining the surprising Tesla offer for Solar City says, Tesla is offering not an explicit price for Solar City but between 0.122x and 0.131x of its shares. And that kind of offer is going to create twice as much number-crunching. A dollar of cash offered is worth… a dollar of cash. But how much is a share of Tesla worth? And why should a share of Solar City be entitled to between 0.122x and 0.131x Tesla shares?

In a formal fairness opinion, the respective bankers are opining on the reasonableness of the exchange ratio, itself. As an example, read the language from Zillow’s stock-for-stock acquisition of Trulia completed last year.
J.P. Morgan rendered its oral opinion to the Trulia board that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the Trulia exchange ratio in the proposed mergers was fair, from a financial point of view, to the holders of the Trulia common stock.
And so JP Morgan, Trulia’s advisor, first simultaneously valued Trulia and Zillow. Then from those valuations, it then figured out the corner points for an exchange ratio....MORE
*See, for example, the fact that during today's regular market SolarCity's June 21 afterhours 15% gain on the news of the buyout offer shrank throughout the day to end at a 3.26% premium to the prior day's close.
That 69 cent gain continued to dwindle in today's afterhours action by another 51 cents, giving a net 18 cent move after all the hubbub.

Tesla's $22.95 whack was a part of SCTY's lack of exuberance, along with a slew of bets on whether the deal even gets done.
Tesla traded up a buck after today's close.

So, Who Will Write A Fairness Opinion On The Tesla/SolarCity Deal? (TSLA; SCTY)
SolarCity/Tesla: Analysts React (SCTY; TSLA)