News Column

Elon Musk's SolarCity Set to Trade After $92 Million IPO

Dec 13, 2012

Dana Hull

Elon Musk with President Obama.
Elon Musk with President Obama.

SolarCity is moving forward with its initial public offering after sharply cutting the expected price and increasing the number of shares sold.

The San Mateo-based solar installer's much-anticipated IPO, which was postponed Tuesday evening after investors balked at an initial price of $13 to $15 a share, priced at $8 a share Wednesday. The stock is expected to begin trading on the Nasdaq exchange Thursday with the ticker symbol SCTY. Some cleantech watchers hope the lower price leads to a strong bounce on the first day of trading, reigniting enthusiasm for the battered cleantech industry.

In a regulatory filing Wednesday, the company slashed the proposed launch price while increasing the size of the offering to 11.5 million shares, up from 10.1 million. At $8 a share, SolarCity would raise roughly $92 million. In previous filings with the Securities and Exchange Commission, the company had sought to raise as much as $201 million.

"Ninety-two million is still a lot of money," said Dallas Kachan, managing partner of cleantech consulting firm Kachan & Co. "Maybe the IPO is a faster route to capital than trying to raise another private round. And they could be artificially lowering the price in an effort to best position the stock to rise."

Even before the share price cut, SolarCity Chairman Elon Musk, who already holds a 31 percent stake in the company, had

made the unusual move of indicating his intent to buy $15 million of common stock from underwriters at the IPO price. Now other key investors who hold seats on SolarCity's board of directors are doing the same. Entities affiliated with venture firm Draper Fisher Jurvetson will purchase 1.5 million shares, while DBL Equity Fund will buy 300,000 shares.

"There was clearly lack of institutional demand at the original asking price," said Theo O'Neil, managing director of Litchfield Hills Research. "The institutions are clearly interested in a lower price, and it is up to Elon and the rest to take a lower price or punt."

Solar companies, particularly manufacturers of solar panels, have been battered for months, but the lower panel prices have been a boon to installers.

The "solar curse" began with the bankruptcy of Fremont solar manufacturer Solyndra in 2011, which cast a long shadow over the entire industry. In April, Oakland-based BrightSource Energy, which is building a massive solar thermal power plant in California's Mojave Desert, canceled its IPO plans at the final hour. Though SolarCity, Solyndra and BrightSource are very different companies, Wall Street tends to paint the solar industry with a broad brush.

"I like SolarCity and its business model," said John Montgomery of Montgomery & Hansen law firm in Menlo Park. "If they can go at $8 a share and raise the capital they need for the next phase of their growth, that is a sweet thing. And it may make the public markets safer for solar and other alternative energy companies."

Founded in 2006, SolarCity does not manufacture solar panels, but has moved aggressively to become one of the nation's leading installers of rooftop solar panels on homes and commercial businesses. It pioneered the concept of a "solar lease," offering homeowners the ability to go solar for no money down in exchange for monthly lease payments that are typically 10 to 15 percent less than their monthly utility bill.

SolarCity's IPO underwriters include Goldman Sachs, Credit Suisse and Bank of America's Merrill Lynch.

Its regulatory filing includes red flags for potential investors, however. SolarCity is being investigated by both the Treasury Department and the IRS for possibly overstating the market value of solar panels when claiming cash grants. The Office of the Inspector General of the U.S. Department of Treasury has issued subpoenas to SolarCity and several other companies in the rooftop solar industry. The company also says it was notified in October that the IRS was conducting an income tax audit of two of its investment funds.

Musk, who also serves as CEO of Tesla and SpaceX, co-founded SolarCity with two cousins. Lyndon and Peter Rive. Lyndon Rive, a native of South Africa who has been a member of the U.S. National Underwater Hockey Team, serves as SolarCity's CEO and Peter is the company's chief technology officer.



Source: (c)2012 the San Jose Mercury News (San Jose, Calif.). Distributed by MCT Information Services.


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