Brexit ‘Black Friday:’ Is Tesla’s Bid For SolarCity A Sign That George Soros Is Right?
A Brexit “Black Friday” is the prediction by hedge fund manager George Soros made in a recent Guardian opinion piece, with regard to the Thursday, June 23 referendum should British voters decide that the country should not remain a member of the 28-state European Union; could Tesla Motors, Inc. (NASDAQ: TSLA) CEO Elon Musk’s offer to purchase cousin SolarCity Corporation (NASDAQ: SCTY) signal that Soros’ dire prediction for markets carries credence?
Brexit polls have remained neck and neck between citizens who feel England should remain or leave. Currently, polls by the Economist indicate 44 percent of citizens wish to remain in the EU, while 43 percent wish to leave.
Though the Inquisitr has previously reported on presumptive Republican presidential nominee Donald Trump’s seeming lack of true business acumen when compared with investing stalwarts, such as Soros, Warren Buffett, and Carl Icahn, Trump himself has predicted a bleak future for the global economy, suggesting that a “massive recession” is imminent, as reported by the Inquisitr.
Jay Leno has compared Tesla CEO Elon Musk to Thomas Edison and Henry Ford, as reported by CNBC. Few can argue with the ingenuity and seeming altruistic motives behind the products and services Tesla and SolarCity offer. However, for many months now, financially fluent observers of Musk and the companies have been raising red flags, as reported by the Inquisitr.
Tesla share price over 12 months via Bloomberg. Just below 163 last night down 7%. pic.twitter.com/VJdoevEaNq
— Peter Morgan (@psimpsonmorgan) February 5, 2016
SolarCity’s “complex financing schemes” have been compared to those of Enron’s, by the Daily Caller. Enron has been described as “one of the biggest accounting frauds in history,” by Investopedia.
When the Inquisitr reported on the consensus analyst 2016 earnings per share estimate for SolarCity in September 2015, the figure was reported to be a loss of $7.80. Today, that figure has ballooned to $9.79, as reported by Yahoo Finance. The consensus for 2017 is for a loss of $9.65, up from $8.60, 90 days ago.
This bleak outlook has caused the market to punish SCTY shares, which were down 63.5 percent over the past year before this evening’s buyout news, which sent the stock rallying 14.7 percent in after-hours trading.
Though Tesla is expected to be profitable in 2016, after losing $2.30 per share in 2015, month after month, estimates have been continually brought down. Almost one month ago, Tesla issued close to $2 billion in stock in a secondary offering, an amount described as being “not enough” to meet is capital needs by Bidness Etc.
Could Tesla’s grab for cash, as well as its proposed, what is for all intents and purposes a merger with SolarCity, be a sign that Elon Musk, cousin and SolarCity CEO Lyndon Rive, and company are hunkering down, expecting to weather a financial storm?
After-hours trading in TSLA stock showed a decline of 12.2 percent. SCTY stock is quoted up, 14.7 percent. The moves added roughly $2.4 billion to SolarCity’s market capitalization, while removing about $3.8 billion from Tesla’s: probably not what the Tesla and SolarCity management teams were aiming for.
With this evening’s market reaction, this deal appears to destroy shareholder value, while, with the ill-placed intention of attempting to shore-up what little financial moat exists of the two companies, which resulted in just the opposite, the move appears to put each of the firms in precarious positions. Further, the market’s reaction to the news, including the instant erasure of a net $1.4 billion in market capitalization, could be held up as proof that, overall, markets are currently weak, and intolerant of unexpected bad news.
“So the worry is, throw any more uncertainty into the scheme of things and there’s trouble,” the Orlando, Florida-based investor stated with regard to what to expect on Friday, the day after the Brexit vote.
The terms of the proposed Tesla/SolarCity deal, as hosted with Forbes, state that “0.122x to 0.131x” of a TSLA share be granted to SCTY shareholders. As of the close of regular trading, at 4 p.m. ET, 0.122 of a TSLA share was worth $26.79. As of the close of after-hours trading, at 8 p.m. ET, 0.122 of a TSLA share was worth $23.52. After-hours trading in SCTY stock closely reflected this, trading as high as $27 shortly after the deal was announced, before backing-off significantly to end the after-hours session at $24.31.
[Photo by Mike Windle/Getty Images for Vanity Fair]
