SolarCity (SCTY)/Tesla (TSLA) Merger Spread Blows-Out Ahead of Shareholder Vote

September 14, 2016 12:48 PM EDT

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The merger spread on Tesla's (NASDAQ: TSLA) pending takeover of SolarCity (NASDAQ: SCTY) continues to widen, rising 2% today. The spread is now 28.3%, versus the average spread of 10% since the deal was announced on August 1st, according to's Merger Arb tracker. Normally spreads on deals expected to close are just a few percentage points, indicating trouble for the TSLA/SCTY deal.

Under the deal, announced in August, SolarCity stockholders will receive 0.110 Tesla common shares per SolarCity share. Based on current Tesla levels, this values SolarCity at $21.57 versus the current market price of $16.81.

SolarCity's 'go shop' runs through today (September 14, 2016).

The agreement, which is expected to close in the fourth quarter, is still pending shareholder approval. Shareholders have been very critical of the combination, which explains the huge spread. Yesterday, short seller Jim Chanos (short both SCTY and TSLA) called the deal 'crazy.'

A date for the shareholder vote has not yet been set, but Tesla currently expects that the record date for the determination of Tesla stockholders entitled to receive notice of, and to vote at, the Tesla special stockholders meeting in connection with the SolarCity acquisition will be sometime during the week of September 19, 2016.

Notably, the consummation of the merger is subject to approval by the stockholders of Tesla, including by the holders of a majority of the total votes of shares of Tesla common stock cast on that matter at the special meeting of the stockholders of Tesla that are not owned by Mr. Elon Musk and the other directors and the named executive officers of SolarCity and certain of their affiliates.

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