Tesla SolarCity Merger Deal
In This Article, I will explain why the Tesla SolarCity Merger Deal will pass the shareholder vote effortlessly. It’s quite obvious to me that betting against Elon Musk is a lost cause. Instead of trying to stop the man, join the Tesla cult and profit. Seriously, if you’re anti-Tesla you have to get with the times. This is an energy revolution that Musk has started and there’s no going back. I do believe that this merger is very beneficial to Tesla in the long run. Moreover, like my Twitter Long Term post, I think that Tesla will also make new highs in the near future. I will make a post on that point of view soon. We will now get into the reasons of why shareholders will vote yes on the deal and the impact it will have on both TSLA and SCTY stocks.
The impact of a Tesla SolarCity Merger:
I want to start by explaining how both of the companies stocks would react to a passing vote on the merger. First, let’s start with SolarCity. SCTY stock would likely see a sharp rise in share price. In fact, Tesla announced that it would purchase each SolarCity share at a conversion rate of 0.11 TSLA stock on the day of the merger. Basically, to get the value in SCTY stock take 1 TSLA share and multiply by 0.11.
At today’s prices, there is a nice spread of about 15% that can be used to profit if the merger goes through. This is because the media has bashed the deal. The spread will likely stay more or less the same until the vote happens. Although, it is shortening as of late. In regards to Tesla stock, many fear that it will see a large drop if it acquires SolarCity. This is possible but I would argue that it could also react neutrally since the news is baked into a certain extent. There is also a growing possibility that the stock rises as investors will be relieved that this messy deal has ended and that the company can finally move on. It’s now time to look at why the deal will pass.
Reason 1: Institutional Investors
There are multiple explanations within this one reason. This is a good thing. Here are the percentages of stock owned by institutional investors for each company.
Here are the percentages of stock owned by institutional investors for each company. TSLA: 68.30%. SCTY: 44.60%. With such a large number at stake. The big boys will not want to risk disaster and go against Elon’s recommendation of voting yes on the Tesla SolarCity merger. Why would they? He has done everything he has said he would and more. Moreover, the attention should be on Fidelity (OTC portfolio) which owns about 11% of both companies. That’s huge if you didn’t realise. Not only will they want the vote to go through since they own a large chunk of SolarCity stock they are also Elon Musk fanboys. Look at this recent quote from Gavin Baker, Fidelity’s OTC portfolio manager.
“We are fans not just of Tesla products but of the concepts underpinning the firm and potential future partnerships ahead of it. We foresee fruitful synergies between Tesla and any company in search of superior battery technology, and we modestly increased our position this quarter.”
Yeah, I know, pretty bullish sign right there. Like Fidelity, it has been said that about half of Tesla shareholders also own SCTY stock. This means that there is a large interest that wants the acquisition to happen. I could go on but you get the point in regards to investors on the matter. It seems like the majority will vote yes. Next up, a contrarian approach.
Never bet against Elon Musk
This is a discretionary approach to analysing the situation but I think it works quite well. It’s fair to say by now that you can’t beat Musk at his own game. I, personally, wouldn’t know why you would want to fight someone who is bettering the world but some do apparently. Cough, cough, big oil companies. Throughout this whole journey, Musk has successfully led Tesla, SolarCity and SpaceX. Yet people said that his ventures would fail. Needless to say, Elon came out victorious time and time again. He has a vision and he is working hard to make it a reality. He wouldn’t let anything mess up the end goal. This time will be no different with the Tesla SolarCity merger.
The general opinion is usually wrong
It is no coincidence that 90% of traders/investors lose. The 90% percent just follow the public’s view and the media. You have to look beyond the noise in this game against Wall Street to be successful.
The media is most likely bashing the deal in the sole purpose of creating drama. Because that’s how they make their money. Moreover, people like the notorious short seller, Jim Chanos who trash the potential merger have a special interest at hand. For example, Chanos who is heavily short selling both TSLA and SCTY stock is saying that if the merger goes through the two companies will basically fall apart and lose most if not all their value. Now, how does this make sense? Someone who is shorting a company and is advising an action that would allegedly make the business succeed. Remember, he is short both stocks. Becuase of this, a SolarCity buyout would hurt his position.In reality, he is protecting himself using inverse psychology. It’s as simple as that.
Based on this analysis, it is my personal opinion that the Tesla SolarCity merger deal shareholder vote will pass.