Gordon Johnson Warns Of 'Burgeoning Risk' To SolarCity/Tesla Deal Closure

Axiom's Gordon Johnson is maintaining his Sell rating and $7 price target on SolarCity Corp SCTY Friday, and believes Tesla shareholders are "less inclined" to approve the merger with Tesla Motors Inc TSLA. According to Johnson, the joint Form S-4 filed by SolarCity and Tesla suggests that Tesla Motors “failed to consider whether another solar company was a “better fit". 

“With a number of solar vendors available currently, at arguably depressed prices, we blv SCTY’s & TSLA’s joint Form S-4 filing shows TSLA failed to consider if any other solar companies offered more favorable synergies,” Johnson explained.

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As evidence of this, the analyst mentioned that after Tesla’s board approved the SolarCity merger offer, Evercore had been brought in. Following about three weeks of due diligence, Evercore declared SolarCity was “the most attractive asset for Tesla in the solar energy industry.”

Risk To Deal

However, Evercore didn't receive SolarCity’s financials, including the company’s cash position, financial results and financing needs almost three weeks after it had provided its opinion in favor of the merger.

In addition, while SolarCity had received at least three possible counter offers in July, none of the potential acquirers were willing to counter Tesla’s offer.

“Armed w/ this info, we blv TSLA shareholders are incrementally less inclined to vote yes for this deal before the current 4/30/17 “cutoff date”,” Johnson stated.

The analyst believes there is only a 50/50 chance that the deal would close successfully.

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