Chanos: SolarCity deal 'corporate governance at its worst'

NEW YORK (Reuters) - Shortseller Jim Chanos of Kynikos Associates blasted Tesla Motors Inc's (TSLA.O) proposed acquisition of SolarCity Corp (SCTY.O), describing it as a "brazen" bailout and "shameful example of corporate governance at its worst."

"SolarCity, whose bonds were yielding 20 percent yesterday, is a company headed toward financial distress," Chanos said in an emailed statement on Wednesday. "It is burning hundreds of millions in cash every quarter, a burden that now Tesla shareholders will have to bear, at a total cost of over $8 billion."

Tesla Chief Executive Officer Elon Musk called the proposed $2.8 billion acquisition a "no-brainer" when the deal was announced after Tuesday's market close. But shares of Tesla were down about 9 percent on Wednesday, while SolarCity rose about 6 percent.

Chanos, whose firm has been betting against Tesla and SolarCity shares, said the combined drop in the market value of the two companies was more than the equity value of the deal itself, "which means that Tesla shareholders think SolarCity shares are essentially worthless.

"Finally," he added, "it is hard for me to believe that this deal was not being contemplated when Tesla, and Mr. Musk himself, sold shares just a few weeks ago."

(Reporting by Jennifer Ablan; Editing by Lisa Von Ahn)