
SolarCity Accused of Taking Shingling Technology Secrets - thisisit
http://www.bloomberg.com/news/articles/2016-09-26/musk-controlled-solarcity-sued-by-cogenra-and-khosla-ventures-itkp0ypx
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chollida1
A company is often at its most vulnerable when its being acquired like Solar
city is. You've signed the paper work for the sale and you've exposed yourself
to the acquirer.

With all the merger arbitrage funds out there, you have some very powerful and
well moneyed people with a vested interest in seeing your merger go through.

Without commenting or knowing anything about the merits of the lawsuit, it's a
very opportune time to bring up a lawsuit. I mean if you are a Solar city
shareholder your shares had a very good chance of going to zero without this
gift from Tesla, you're going to do pretty much about anything possible to
ensure the merger goes through.

So if that means throwing a bit of cash to SunPower, then you're going to very
strongly consider it, infact you're going to pressure Telsa to help out with
settling the lawsuit because if the merger goes through it becomes their
lawsuit.

This has already been a rocky merger for a merger that looked like a sure
thing at the beginning.

If you've never thought about the mechanics of how merger arb works. Typically
a fund will want to be flat of both companies by the time the merger is
completed.

To do this, you find out the ratio of shares being exchanged. In this case its
about 1 Telsa share for every 10 Solar city shares so lets use a ratio of 0.1.

The idea is that when the merger closes every 10 shares of Solar city will
become 1 share of Tesla so you then flatten your short position of Tesla with
the new shares from the merger and the difference between the price you
bought/shorted for and the closing transaction price is your spread/profit.

Right now the spread(Price of SolarCity - Price of Telsa*ratio) between the
two companies has grown from 0.44 in August to 2.57 as of now( it was as high
as 5.5 a week ago), which indicates there is a fair bit of uncertainty over
whether or not this merger will go.

Typically you'd expect the spread to asymptotically approach the deal price as
we approach the closing date as your certainty should increase over time up to
the closing date. An expanding spread is a troubling sign....

Possibly helping push the spread wider is the cost of borrow on Tesla.

So assuming you expect the merger to go through for every 10 shares of Solar
City you buy you short 1 share of Tesla. Now when you short a share, there is
the question of ownership, you first need to borrow it. And to borrow it you
need to pay a fee to borrow.

Unfortunately right now Telsa shares are being loaned out for around 100%,
which is extraordinarily high. For reference, if you wanted to say short
Google you would expect to pay around 0.35%, a third of a percent.

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vkou
> Unfortunately right now Telsa shares are being loaned out for around 100%,
> which is extraordinarily high. For reference, if you wanted to say short
> Google you would expect to pay around 0.35%, a third of a percent.

As someone who has never shorted a stock before:

Why is the cost of shorting so TSLA high? Is it high demand for shorts? Is
there some reason that stockholders are unwilling to let others borrow their
stock? Are there no institutional investors that are interested in going long
on TSLA?

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toomuchtodo
Yes, it's because demand to short TSLA is so high. There are a whole lot of
people betting against TSLA, and not as much institutional dollars out there
soaking up the stock.

Disclaimer: I'm long TSLA

