Tesla Motors (NASDAQ: TSLA) released on Tuesday a regulatory S-4 filing.
An S-4 filing is used by a company to communicate notable information related to a merger or acquisition. In Tesla’s case it has a pending merger agreement with its sister company Solar City (NASDAQ: SCTY) and the regulatory filing was sent to shareholders to vote on the pending merger.
Rationale For A Merger
Tesla believes that a merger with SolarCity would create a more efficient and fully integrated “one-stop solar and energy storage experience.” By combining the two companies into one entity, Tesla believes it can generate $150 million in cost synergies in the first full year after closing and also result in lower costs for customers.
SolarCity’s shareholders will be entitled to receive 0.110 shares of Tesla’s common stock for each share of SolarCity held. This was made clear when the merger was announced on June 21, 2016 and valued each share of SolarCity at $24.16 at that time.
SolarCity tasked independent and disinterested directors with evaluating the proposal and their conclusion was that it is in the best interest of shareholders to approve the merger.
If the merger is not approved by shareholders then SolarCity and Tesla will remain independent companies and will each continue operating independently.
Tesla also updated its liquidity positioning – a key concern among shareholders given a lack of clarity as to when it will consistently be earning profits while SolarCity’s declining business activity and interest in alternative forms of power have been well documented.
The company said that as of June 30, 2016, it has $3.25 billion cash and cash equivalents, which includes $2.76 billion of money market funds. The company plans on paying $426 million in the third quarter to holders of convertible senior notes due 2018.
However, investors and traders are attributing the weakness seen in Tesla’s stock in the morning to what it said next.
Tesla said that it believes its cash flow and and access to cash and cash equivalents will provide it with sufficient liquidity to operate through the end of the year it may still need to raise funds in the future, including through equity or debt offerings.
Tesla’s stock hit an intra-day low of $198.31 but later reversed all of its losses and was trading nearly flat on the day.