Tesla (TSLA) Clears Antitrust Hurdle For SolarCity Purchase

Tesla Motors, Inc. (NASDAQ:TSLA) has secured antitrust approval from the Federal Trade Commission (FTC) for its deal to acquire SolarCity Corporation (NASDAQ:SCTY) . In fact, the deal has obtained early termination, which means that the waiting period for the acquisition will conclude before the statutory period expires, per the FTC.

The FTC website also reveals that early termination implies that the FTC and the Department of Justice Antitrust Division have completed their evaluation of the deal and decided not to pursue any enforcement action during the waiting period.

The approval takes Tesla one step closer to the purchase of SolarCity. However, the automaker still needs to obtain shareholders’ approval for the deal.

Tesla had announced the agreement to acquire SolarCity for $2.6 billion in an all-stock purchase on Aug 1. Per the deal, SolarCity stockholders will receive 0.11 Tesla shares for each stock of SolarCity. When considering the weighted average price for Tesla stock over the week before the announcement, the deal ends up valuing each SolarCity share at $25.37. The figure represents a discount compared to Tesla’s previous offer to buy SolarCity for $26.50–$28.50 per share.

Tesla expects to close the deal in the fourth quarter of 2016. The acquisition is anticipated to generate savings of $150 million in the first year for the combined company.

However, the deal has met with skepticism from investors. Tesla is already struggling to cut its losses. The problem may be further aggravated with the addition of SolarCity’s losses. Moreover, the addition of the latter’s debts and cash outflows will increase the strain on Tesla’s financials.

Zacks Rank

Currently, both Tesla and SolarCity carry a Zacks Rank #3 (Hold). Some better-ranked automobile stocks include The Goodyear Tire & Rubber Company (NASDAQ:GT) and Fox Factory Holding Corp (NASDAQ:FOXF) , each carrying a Zacks Rank #2 (Buy).