Tesla: The SolarCity Acquisition

Zhichuan (Frank) Li; Tomiwa Ademidun

Product #:9B17N011

Supplier:Ivey

Discipline:Finance

Setting:United States, 2016

Details:Case (PDF) • 14 pages • 2017-07-03 (Rev: 2020-12-01)

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In mid-2016, the chief executive officer of Tesla, a U.S. manufacturer of electric cars, was interested in acquiring SolarCity, a U.S. solar power manufacturer and distributor. Both Tesla and SolarCity operated in young, high-growth industries; however, despite their high growth rates, both companies were also losing money every year. Both companies had similar products and could be a strong strategic fit. The chief executive officer needed to convince Tesla’s shareholders that SolarCity would be a good acquisition target and then determine a fair price to offer.

Learning Objectives

This case is suitable for undergraduate and MBA courses in finance and strategy. After completion of the case, students will be able to

analyze the reasoning required when determining the inputs and assumptions in a discounted cash flow analysis;
understand the similarities and differences (e.g., synergies, debt and enterprise value, control premium, and other metrics) between valuing a stock for a minority equity ownership and for the strategic acquisition of an entire company;
appreciate the strengths and limitations of using precedent transactions and comparable analysis when valuing young companies that may not yet be profitable; and
recognize the signs of good and bad corporate governance by analyzing the management and board structures to ensure that there are no conflicts of interests and that the goals of the board, management, and shareholders are aligned.

Tesla: The SolarCity Acquisition

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Learning Objectives