Avondale Thinks SolarCity Shareholders Will Approve A Buyout

Avondale Partners said the shareholders of SolarCity Corp (NASDAQ: SCTY) will likely approve the merger deal with Tesla Motors Inc (NASDAQ: TSLA), despite being "surprised" with the timing of the deal.

"We believe it is likely SCTY shareholders approve the transaction, which approaches our fair value estimate and allows for upside participation in the combined company," analyst Michael Morosi wrote in a note.

Morosi said shareholders of Tesla, who face a more contentious vote, will also vote in favor of the deal, as SolarCity's "360 thousand customer installed base allows for ample cross-sell opportunities of Tesla's new Model 3 and home energy storage applications."

Related Link: Goldman Sachs Negative On SolarCity Moments Before News Hit Of Tesla's Interest

On the other hand, SolarCity would benefit from the Tesla's platform to drive meaningful sales leverage.

"The combined company would be a true end-to-end sustainability-as-a-service provider, bringing a 21st Century automaker and utility into a single offering," Morosi noted.

Morosi maintains his Market Perform rating and $30 price target on SolarCity and believes this transaction has more positive read-throughs than negative for companies levered to distributed solar, such as Vivint Solar Inc (NYSE: VSLR), Solaredge Technologies Inc (NASDAQ: SEDG), Enphase Energy Inc (NASDAQ: ENPH) and SunPower Corporation (NASDAQ: SPWR).

Late Tuesday, Tesla CEO Elon Musk sent an unsolicited acquisition bid to SolarCity CEO Lyndon Rive, valuing the company at $26.50–$28.50/share. At the midpoint of the proposed range, the transaction values SolarCity at $2.7 billion.

At the time of writing, shares of SolarCity were up 6.43 percent to $22.55, while Tesla had slipped 9.27 percent to $199.25 on the day.