Tesla to Pay $2.6 Billion for SolarCity

SolarCity Corp. has agreed to be acquired by Tesla Motors Inc. for $2.6 billion, about $200 million less than the initial offer. Electric vehicle maker Tesla expects to achieve "significant" cost savings and "dramatic improvements" in manufacturing efficiency as a result of the acquisition of solar panel installer SolarCity, Tesla Chief Executive Officer Elon Musk said earlier today.

Musk said the combined companies will have a "stronger balance sheet," but likely will require a "small equity capital raise" next year. Both companies have been burning through cash and have projected achieving positive cash flow later this year.

As a result of the merger, Tesla will hold 93.5% of the new company and SolarCity will hold 6.5%. The combined company expects sell solar panels, residential and commercial battery storage systems and electric vehicles under a single brand. "Solar and storage are at their best when they're combined," the companies said in a blog post on Tesla's website.

Tesla and SolarCity expect to save $150 million in costs in the first full year after the deal closes as the combination would improve manufacturing efficiencies and reduce customer acquisition costs. Musk said he thought the combined companies could "significantly exceed" that mark in the first year.

SolarCity has a 45-day "go-shop" period in which it can solicit alternative acquisition proposals. It will have to pay Tesla a $78.2 million termination fee unless it ends the deal with Tesla in order to enter an agreement with a third party that initially made an alternative offer before the "go-shop" period ended. In such an instance, SolarCity would pay a $26.1 million termination fee, according to a regulatory filing.

The merger is expected to close in the fourth quarter. It still needs the approval of a majority of "disinterested" shareholders of both companies, meaning Musk will not have a say.