Tesla & SolarCity combine to create the world's only vertically integrated sustainable energy company

Tesla says that the time is right to bring the two companies together: Tesla is getting ready to scale its Powerwall and Powerpack stationary storage products and SolarCity is getting ready to offer next-gen differentiated solar solutions. By joining forces, the companies can operate more efficiently and fully integrate products, while providing customers with an aesthetically beautiful and simple one-stop solar + storage experience: one installation, one service contract, one phone app.

Tesla expects to achieve cost synergies of $150 million in the first full year after closing, and also expects to save customers money by lowering hardware costs, reducing installation costs, improving manufacturing efficiency and reducing customer acquisition costs. The partnership will also be able to leverage Tesla's 190-store retail network and international presence to extend our combined reach.

Here are some key terms of today's announcement: this is an all-stock transaction with an equity value of $2.6 billion based on the 5-day volume-weighted average price of Tesla shares as of July 29, 2016. Under the agreement, SolarCity stockholders will receive 0.110 Tesla common shares per SolarCity share, valuing SolarCity common stock at $25.37 per share based on the 5-day volume weighted average price of Tesla shares as of July 29, 2016.

After comprehensive due diligence in consultation with independent financial and legal advisors, the independent members of the Tesla and SolarCity boards of directors approved this transaction. Tesla's financial advisor was Evercore, and Wachtell, Lipton, Rosen & Katz was its legal advisor. The financial advisor to the special committee of SolarCity's board of directors was Lazard and its legal advisor was Skadden, Arps, Slate, Meagher & Flom.

As part of the agreement, SolarCity has a 45-day period known as a "go-shop", which runs through September 14, 2016. This means that SolarCity is allowed to solicit alternative proposals during that time. Each company today filed a Form 8-K with the SEC that provides additional details regarding the transaction.

While today's news is a big step, it isn't the finish line – Tesla expects the transaction to close in the fourth quarter of 2016. Before then, the deal must be approved by a majority of the disinterested shareholders of both Tesla and SolarCity voting at each shareholder meeting. Regulatory approval must be obtained and other closing conditions met.