Valuation anomaly

1 September 2016 By Antony Currie Follow @AntonyMCurrie

Lazard spotted a $400 mln error in a SolarCity valuation used for its $2.6 bln sale to Tesla. The Musk-orchestrated deal already is fraught with controversy over governance, finances and industrial logic. If anyone should know how important basics are, it’s an acclaimed engineer.

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SolarCity included mistakes in its financial data during takeover talks with Tesla that potentially undervalued the company by $400 million. The mistake was made public in the merger documents submitted to the Securities and Exchange Commission on Aug. 31.

The error stemmed from SolarCity double-counting some of its projected indebtedness.

The solar-panel installer's adviser, Lazard, discovered the error on Aug. 18, two-and-a-half weeks after the $2.6 billion deal was announced and nine days after SolarCity reported second-quarter earnings.

Using SolarCity's erroneous data, Lazard had proffered a valuation range for the company of between $14.75 a share and $34 a share. Tesla on Aug. 1 offered $25.37 a share, based on the average price for Tesla stock in the five days to July 29. Lazard's revised valuation range increased to between $18.75 a share and $37.75 a share.

After meeting to discuss the impact of the new information, Tesla, SolarCity and its advisers decided not to change the terms of the deal, according to the merger proxy.

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