Deals

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

SolarCity is within inches of reaching a milestone.

No, not becoming part of Tesla Motors; the shareholder vote on that doesn't happen until November 17. But this particular milestone does have something to do with that deal:

Disturbing
Tesla's all-stock offer now implies a premium to SolarCity's undisturbed share price of less than 1 percent
Source: Bloomberg, the companies
Note: Implied offer price prior to August 1 calculated using the mid-point of Tesla's initial proposed exchange ratio.

Based on Monday's closing prices, any SolarCity investors who owned the stock on June 21 would get Tesla stock worth about 15 cents, or 0.7 percent, more than where the solar-leasing company's shares closed that day. It's fair to say that, at the sub-1 percent level, the phrase "takeover premium" loses much of its meaning.

True, the implied offer is still higher than where SolarCity's stock trades now. But the gap is much narrower than it was last month, when investors seemed to lose belief in the deal's prospects for closing:

Faith Once More
SolarCity's discount to Tesla's offer has come back in below 8 percent
Source: Bloomberg, the companies
Note: Prior to August 1, discount calculated as per the mid-point of Tesla's initial proposed exchange-ratio range.

SolarCity's stock is increasingly priced for a "yes" vote. The thing is, even if the takeover premium tipped into negative territory, SolarCity's investors would likely vote for it anyway, just to enter the relative sanctuary of Tesla's balance sheet and its ability to tap the equity market. That SolarCity accepted a low-ball offer after the stock was beaten down has been the salient fact running through this entire process.

But the other thing is, by compounding Tesla's own not-inconsequential need for cash and thereby undermining its stock price, SolarCity's shareholders destroy the takeover premium by the very act of reaching out to grab hold of it. Tesla's stock is down by almost 12 percent since it announced its intentions. It's within a whisker of the low point it hit in the sell-off that immediately followed.

Round Trip
Tesla's stock is almost back to the trough it hit after the SolarCity deal announcement, taking the takeover premium with it
Source: Bloomberg

Tesla has shed $3.3 billion of value since it announced the deal, far more than SolarCity's entire market cap of $2.1 billion on that fateful day. This is the context against which Tesla's own shareholders should view the recent flurry of announcements from the company.

On Wednesday, Tesla is due to unveil a new product, "unexpected by most." That event is delayed from its original target of Monday, when investors were instead digesting a weekend announcement that Tesla had signed a letter of intent for Panasonic to make solar cells at the factory SolarCity is building in Buffalo, New York. The partnership is contingent on the merger going through, of course, and looks designed partly to allay concerns around the extra spending Tesla will take on with it. 

And who can forget, of course, CEO Elon Musk's tweet-heard-round-the-market earlier this month, when -- in contrast to regulatory filings and an earlier email made public, not to mention Goldman Sachs's financial projections -- he claimed Tesla wouldn't need to raise cash this quarter.

None of this has been enough to halt the slide in Tesla's stock price. Still, there's a good chance the buzz around new products and maybe third-quarter results (due in just over a week and likely to look good at the top line, at least) will provide a boost and help restore some of that takeover premium for SolarCity's investors.

Just remember that, deep down, they probably don't really care -- and that's why Tesla's investors should.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net