As analysts and investors of Elon Musk's Tesla (TSLA - Get Report) gripe over whether a $2.8 billion deal for residential solar panel installer SolarCity (SCTY) makes sense for the electric automobile maker, the question lingers: Could someone else be enticed to make a counter offer?
Despite the bludgeoning SolarCity's stock has taken in the past year, at the mid-point, Tesla's $26.50 to $28.50 per share offer represents an unimpressive premium to the target's historical trading price, Axiom Capital analyst James Bardowski said Wednesday.
At this time last year, SolarCity shares were trading at nearly $60 apiece, and while those shares were up nearly 4% over Tuesday's close to about $21.88 at end-of-day Wednesday, the stock is still around $6.50, or about 23%, shy of the high end of Tesla's offer, implying the market might not be confident a deal with Tesla gets done.
Indeed, several analysts, including Needham's Edwin Mok and Oppenheimer's Colin Rusch have raised concerns over Tesla gaining shareholder approval, with the latter claiming a vote on the deal at Tesla could get "somewhat messy."
On the other hand, Morningstar analyst Andrew Bischof expressed confidence in Musk's ability to gauge the temperature of the room.
"While this is by no means a home run in terms of a shareholder vote, in my opinion, Musk is smart enough to know that he probably has enough support at least to get a vote on the margins," Bischof told TheStreet by phone Wednesday.
But if a deal doesn't go through, what options are left for seemingly struggling SolarCity, which has missed analysts earnings estimates for three consecutive quarters?
Prior to a public bid by Tesla, Axiom, while not banking on any offer from private equity, saw the private sector as the only real means to a sale for SolarCity.
"We generally would not anticipate another bidder," he said. "We did see private equity as a potential candidate, but now with a Tesla offer, we see that as unlikely."
Global demand has spurred increased interest from sponsors in solar in recent years as governments continue to provide incentives for solar project investments.
India announced in December it would raise a fund to invest in alternative energy project developers, China has been the beneficiary of billion dollar funds from sponsors such as Blue Ridge Capital, and U.S.-based fund managers such as SolarCapital Fund continue to scoop up projects in the domestic space.
But these funds have tended to invest on a per-project basis, and selling solar projects outright is "a very small portion" of SolarCity's business, according to Axiom's Bardowski.
Furthermore, Morningstar's Bischof said SolarCity, which analysts have anticipated will burn more than $400 million in cash this year, operates on a business model that requires access to the capital markets. And that's likely to become a dicier proposition in light of the controversy Musk has spawned with what many on Wall Street consider a deal unfair to Tesla investors.
One line of thought by those who see fairly few synergies between the two companies is that Tesla's potentially $28.50 per share offer is simply the bailout of a solar company, of which Musk is co-founder and a 22.6% stakeholder, that is bleeding cash and unlikely to hit its already revised mark of 1.1 gigawatts of solar power installations in 2016.
Moreover, the company makes no money, according to analysts, lending credit to short-seller Jim Chanos' argument that "the combined market drop in the value of both companies" being "more than the equity value of the deal itself," illustrates "Tesla shareholders view SolarCity stock as "worthless."
But if SolarCity, which Axiom's Bardowski calls the 800-pound gorilla in the room for the solar industry, is really as financially troubled as Chanos argues, it's term loan due in December, which has an unpaid balance of $112.5 million, could be a problem for the company.
With shares surging on the deal news, the company's market capitalization was north of $2 billion as of Wednesday's close, making it a massive target for other residential solar players.
Morningstar analyst Andrew Bischof concurs that strategic competitors such as Vivint Solar (VSLR - Get Report) would have no way to take a bite, and solar-centric utilities such as First Solar (FSLR - Get Report) and Duke Energy (DUK - Get Report) would not be eager to target SolarCity as it does not have the strong cash flows investors of these companies typically favor.
Thus with seemingly no other takeover candidates, if a deal with Tesla doesn't materialize, one must question whether SolarCity is truly on a path to failure or if its simply a company with a long, struggling journey toward breakeven.
The opinions of company followers, such as Needham's Mok who believes even a deal with Tesla would not alleviate SCTY's near-term challenges, don't provide much in the way of hope for the latter line of thinking.
With no official deal on the books, it is unclear whether or not Tesla and Solar have yet tapped financial and legal advisers to mull the potential transaction.
If the parties take the next step, expect Wilson Sonsini Goodrich & Rosati to be one of the first firms to get a call.
Wilson's Larry Sonsini, David Segre and Mark Balder advised Tesla on its IPO, WSGR's Steven Bernard and Alexander Phillips tackled SolarCity's public offering.
Solar City also took legal counsel from WSGR's Steven Bernard and Michael Occhiolini for its bond offerings.
--Lou Whiteman and David Marcus contributed to this report.