SolarCity Climbs On Buyout Rumors
Yesterday, rumors started surfacing that Elon Musk, the CEO of Tesla Motors (NASDAQ:TSLA) and chairman at SolarCity (NASDAQ:SCTY) is thinking about buying out SolarCity. While these rumors haven't been confirmed, there is a clear reason why investors are expecting the buyout. Elon musk recently made a huge investment into SCTY that insinuates that he may be working to buy all available shares and pull the company out of the public space and into the private space. Recently Musk made a massive investment into the solar company. According to an SEC filing earlier this month, he purchased 569,680 shares with a value of $17.55 each, adding $10 million worth of SCTY to his current holdings in the company.
How The Market Reacted To The News
As investors, we know that news moves the market, and in reality, there are few pieces of news that have the ability to cause movement quite like buyout rumors. So naturally, we've seen incredibly strong movement in the value of SolarCity since the rumors first surfaced. Currently (12:03), SCTY is trading at $23.41 per share after a gain of $0.92 per share or 4.09% thus far today. This positive movement follows exponential gains in the market yesterday.
Can We Expect Elon Musk To Buyout SCTY?
This is a bit of a tricky question. First off, I want to be clear that the recent investment Musk made into SCTY is large, but in the grand scheme of things, it's nothing more than a drop in the bucket. Sure $10 million sounds like a ton of money. However, SCTY currently has a market capitalization of around $2.657 billion! So, the company is worth about 267 times what he invested by market cap. Now, no company sells out without a premium, and chances are that SolarCity won't either. Considering a modest 30% premium, Elon Musk would have to shell out $3.4541 in order to acquire SCTY. Now, with a net worth of about $13 billion, there's no doubt that Musk has the ability to make such a large investment, but the question is... would he? The reality is that taking the company out of the public space has its drawbacks. So, I don't think that Musk would make this type of investment. So, all in all, the inflation we've seen on the stock is relatively unjustified!
What We Can Expect From SCTY Moving Forward
While I don't believe that Musk is going to buyout SolarCity, I do have a relatively bullish opinion on the stock. Recently, we've seen quite a bit of company specific good news as well as sector wide good news. The bottom line here is that the energy sector is in the midst of a very big change. Consumers, businesses, and governments are all working to reduce greenhouse gas emissions by taking advantage of alternative energy sources. This is going to greatly increase the demand for Solar and other renewable energy resources, and have an incredibly positive impact on SCTY and other companies in the sector in the long run. All in all, things are looking great for the company and its investors.