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Chanos: ‘Brazen' SolarCity deal is ‘corporate governance at its worst’

Chanos: TSLA-SCTY shameful example of corporate governance
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Chanos: TSLA-SCTY shameful example of corporate governance

High-profile investment manager Jim Chanos blasted Tesla Motors' proposed acquisition of SolarCity on Wednesday, telling CNBC that the "brazen Tesla bailout of SolarCity" is a "shameful example of corporate governance at its worst."

"SolarCity, whose bonds were yielding 20 percent yesterday, is a company headed toward financial distress. 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," said Chanos, who has previously disclosed bets against both firms.

"And if you don't want to believe me, consider this: The combined market drop in the value of both companies is more than the equity value of the deal itself — which means that Tesla shareholders think SolarCity shares are essentially worthless," Chanos said. "Finally, it is hard for me to believe that this deal was not being contemplated when Tesla, and Mr. (Elon) Musk himself, sold shares just a few weeks ago."

Tesla was not immediately available for comment. Tesla CEO Elon Musk founded both companies.

Jim Chanos
Scott Mlyn | CNBC

Musk called the proposed, $2.8 billion acquisition a "no-brainer" when the deal was announced after markets closed Tuesday. But shares of Tesla were about 8 percent lower Wednesday as investors expressed skepticism about the deal.

Shares of SolarCity were more than 6 percent higher Wednesday.

Chanos has been outspoken about his short positions in both Tesla and SolarCity, which sells renewable energy systems.

In September, Chanos told CNBC that SolarCity is the most problematic of companies led by Musk, because it is "burning $300 million to $500 million a quarter putting up solar panels that may not be worth anything in 20 years."

Some people have characterized Tesla's bid as a punishing blow to those shorting both Musk firms. As SolarCity's shares soar in the wake of the announcement, short sellers might need to cover their positions. And if any investor needs to raise funds, the argument goes, that could see them exiting concurrent bets against Tesla.

— CNBC's Everett Rosenfeld contributed to this story.