Tesla (TSLA) Faces Four Lawsuits Related To SolarCity Merger

Tesla Motors, Inc.’s TSLA four shareholders have filed separate lawsuits against the company with regard to its $2.6 billion proposed acquisition of SolarCity Corporation SCTY. The lawsuits may result in a delay or prevention of the merger. Moreover, it could lead to increased costs for both companies, including costs related to indemnification of respective directors or officers.

These lawsuits were filed in Delaware between Sep 1 and Sep 14 by the City of Riviera Beach Pension Fund, Arkansas Teacher Retirement System, and individual shareholders, P. Evan Stephens and Ellen Prasinos. One of the lawsuits seeks an injunction to stop the merger.

Tesla stated that the lawsuits were based on an alleged breach of fiduciary duty by Tesla or SolarCity board members. While the company also stated the possibility of more such filings, it considers the cases to be lacking merit. On Aug 3, Bernstein Liebhard LLP announced it is investigating whether Telsa’s board of directors had breached their fiduciary duties in relation to the proposed merger.

Post announcement, the proposed deal met with skepticism from investors, some of whom believe that the merger will not be beneficial for Tesla. The electric carmaker is already struggling to cut its losses. The problem may be further aggravated with the addition of SolarCity’s losses. Moreover, the addition of the latter’s debts and cash outflows will increase the strain on Tesla’s financials.

The deal was expected to close in the fourth quarter of 2016, prior to the filing of the lawsuits. Recently, the company announced that the special stockholder meeting to vote on the merger will be held in the week starting Sep 19 in response to queries from investors. Last month, the company also secured the antitrust approval from the Federal Trade Commission (FTC) for the merger.

Tesla had announced the agreement to acquire SolarCity for $2.6 billion in an all-stock purchase on Aug 1. Per the deal, SolarCity stockholders would receive 0.11 Tesla shares for each stock of SolarCity. When considering the weighted average price for Tesla stock over the week before the announcement, the deal ends up valuing each SolarCity share at $25.37. The figure represents a discount compared to Tesla’s previous offer to buy SolarCity for $26.50–$28.50 per share.




Zacks Rank

Both Tesla and SolarCity currently carry a Zacks Rank #3 (Hold). Some better-ranked companies in the auto space include Tata Motors Limited TTM, sporting a Zacks Rank #1 (Strong Buy) and Fox Factory Holding Corp FOXF, with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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