The following email was sent to Tesla employees today:
Earlier today, I announced that I’m considering taking Tesla private at a price of $420/share. I wanted to let you know my rationale for this, and why I think this is the best path forward.
First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best. As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.
I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve.
This is especially true for a company like Tesla that has a long-term, forward-looking mission. SpaceX is a perfect example: it is far more operationally efficient, and that is largely due to the fact that it is privately held. This is not to say that it will make sense for Tesla to be private over the long-term. In the future, once Tesla enters a phase of slower, more predictable growth, it will likely make sense to return to the public markets.
Here’s what I envision being private would mean for all shareholders, including all of our employees.
First, I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or they can be bought out at $420 per share, which is a 20% premium over the stock price following our Q2 earnings call (which had already increased by 16%). My hope is for all shareholders to remain, but if they prefer to be bought out, then this would enable that to happen at a nice premium.
Second, my intention is for all Tesla employees to remain shareholders of the company, just as is the case at SpaceX. If we were to go private, employees would still be able to periodically sell their shares and exercise their options. This would enable you to still share in the growing value of the company that you have all worked so hard to build over time.
Third, the intention is not to merge SpaceX and Tesla. They would continue to have separate ownership and governance structures. However, the structure envisioned for Tesla is similar in many ways to the SpaceX structure: external shareholders and employee shareholders have an opportunity to sell or buy approximately every six months.
Finally, this has nothing to do with accumulating control for myself. I own about 20% of the company now, and I don’t envision that being substantially different after any deal is completed.
Basically, I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible.
This proposal to go private would ultimately be finalized through a vote of our shareholders. If the process ends the way I expect it will, a private Tesla would ultimately be an enormous opportunity for all of us. Either way, the future is very bright and we’ll keep fighting to achieve our mission.
Thanks,
Elon
Tesla (NASDAQ:TSLA) shares were halted at 2:08 p.m. today following a series of tweets by Elon Musk on taking the company private. Live updates follow.
4:08 p.m. - Tesla closes with a 10.99% gain after trading as high as $387.46. Volume was 29.8M shares vs. average daily volume on Tesla of 8.71M shares. Several short sellers have gone on CNBC and Bloomberg TV to rail against the lack of clarity on how a go-private deal for Tesla would be financed.
3:48 p.m. - Musk tweets that the only reason the go-private deal is not certain is that it’s contingent on a shareholder vote. It's another indication that funding is in place for the deal at $420 per share.
3:46 p.m. - Tesla resumes trading up 12.82% to $385.07.
3:37 p.m. - Musk's letter also indicates that there is no plan to merge Tesla and SpaceX. Musk envisions keeping his stake in Tesla at around 20%.
3:36 p.m. - Tesla shares will begin trading again at 3:45 p.m. Hang on.
3:32 p.m. - Tesla posts a letter (read full letter) sent to employees. Musk says he's considering taking the company private at $420 per share, although a final decision hasn't been made. "I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or they can be bought out at $420 per share, which is a 20% premium over the stock price following our Q2 earnings call (which had already increased by 16%). My hope is for all shareholders to remain, but if they prefer to be bought out, then this would enable that to happen at a nice premium," writes Musk.
3:21 p.m. - CNBC reports that none of the Wall Street banks it contacted were aware of any transaction or had committed to funding a leveraged buyout of Tesla.
3:14 p.m. - An interesting tidbit to consider as investors wait for the Tesla news is that the Saudi sovereign wealth fund invested $3.5B in Uber (UBER) back in 2016 for a stake of around 5%.
2:55 p.m. - Bloomberg Intelligence reports that Tesla's 5.3% notes due in 2025 have a 101% change of control covenant. The notes are trading up $0.0075 at $0.9225.
3:04 p.m. - Musk tweets that under a private Tesla scenario, investors could still buy shares through liquidity events every 6 months or so similar to the set up with SpaceX (SPACE), which has run up to a valuation of around $27B.
2:53 p.m. - The Nasdaq trading halt on Tesla is now at 45 minutes. There's no guarantee shares will resume trading today.
2:39 p.m. - At $420 per share, Tesla would be valued at $71.3B. That amount dwarfs the $53B market cap for General Motors (NYSE:GM) and $40B cap for Ford (NYSE:F).
2:33 p.m. - Circling back to Musk's Twitter replies: "My hope is *all* current investors remain with Tesla even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity’s SpaceX investment."
2:30 p.m. - Oppenheimer warns that a Tesla buyout from a foreign entity could draw attention from The Committee on Foreign Investment in the United States.
2:26 p.m. - Ross Gerber of Gerber Kawasaki says the company has confirmed to him the information in the Musk tweets are accurate.
Previously: Tesla jumps on report of Saudi wealth fund stake (Aug. 7)
Previously: Tesla jumps again as Musk floats private offer on Twitter (Aug. 7)
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Tesla's board has confirmed that it will consider the proposal by chief executive Elon Musk to take it private.
A statement was issued by six members of the electric carmaker's board after Mr Musk tweeted to say he had the funding to de-list the company.
The board had "met several times over the last week" to discuss going private, the statement said.
They said this "included discussion as to how being private could better serve Tesla's long-term interests".
Mr Musk said in his tweet on Tuesday that shareholders would be offered $420 (£326) per share, valuing the business at more than $70bn.
This would make it the biggest deal of its kind, surpassing the purchase of utility TXU Corp in 2007 for $44bn by a consortium.
The brief statement by six of the nine board directors said Mr Musk had "opened a discussion with the board" about taking the company private last week.
The discussions "addressed the funding for this to occur", the six directors added. They did not include Mr Musk, his brother Kimbal Musk, and Steve Jurvetson, a venture capitalist.
'Irregular' announcement
The board statement came amid questions about how Mr Musk opted to disclose the possible de-listing with investors.
While companies are allowed to make announcements via social media, typically they also make a simultaneous regulatory filing, said Andrew M Calamari, a partner at the law firm Finn Dixon & Herling and former director of the New York office of the Securities and Exchange Commission, the US market regulator.
"Just in terms of the style of this, it strikes me as very irregular," Mr Calamari said.
"It also raises questions about his intent," he added. "Was he in earnest in what he's saying, or does he have some other motive" like influencing the stock price.
Tesla shares reached a peak of $368 after Mr Musk's tweets on Tuesday, before trading on the stock market was halted.
Trades resumed later that afternoon, after the company published an email from Mr Musk to employees elaborating on the plans.
Tesla shares surged close to their all-time high of $385, which they touched almost a year ago, but fluctuated on Wednesday after the board members issued their statement.
'Wild swings'
In the staff memo, Mr Musk explained why he wanted to take the company private.
"As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders," he wrote.
"Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long term," he wrote.
He added that the company was "the most shorted stock in the history of the stock market" - a trading strategy which assumes share prices will fall - so "being public means that there are large numbers of people who have the incentive to attack the company".
Those traders are likely to have lost money when the share price rose on the announcement about a delisting.
Questions continue
Mr Musk already owns 20% of the company. He said his intention in taking the company private was not to increase his personal holding and his plan would give existing investors the option to retain their shares.
Regulators are likely to be interested in what evidence exists - such as agreements with investors or banks - for Mr Musk's claim that funding was "secured", Mr Calamari said.
The structure of the deal also remains ambiguous, said Adam C Pritchard, professor of securities law at the University of Michigan.
If more than 2,000 investors opt to retain their shares, then the firm would be subject to the disclosure rules of a public company, he added.
"Intuitively it doesn't make sense because it would still be a public entity, and the public entity status is what is apparently objectionable to Musk," Mr Pritchard said.
Steven Kaplan, a University of Chicago professor who researches private equity, said it would be difficult for Mr Musk to raise the necessary finance when Tesla has still not made a profit.
"The company is cash-flow negative. How do you use any debt on a company that is cash-flow negative?" he said.
Elon Musk has launched a campaign to take Tesla private on a day that included several provocative tweets, a suspension (and resumption) of trading in the company’s shares, reports of a significant Saudi investment, a surge in stock price, and an evocative, Musk-tinged appeal to the Tesla faithful: “The future is very bright and we’ll keep fighting to achieve our mission.”
The ride started with Tesla’s stock rising more than 7% after Musk tweeted he was “considering taking Tesla private” and had funding in place to do so at a price of $420 (£325) per share. Shortly afterwards, Tesla published a blogpost written by Musk entitled ‘Taking Tesla private’ that had been sent to all employees.
Elon Musk (@elonmusk) Am considering taking Tesla private at $420. Funding secured.
The tweet appeared to be triggered by a report in the Financial Times that Saudi Arabia has built up a stake in Tesla worth up to $2.9bn.
At $420 a share, Tesla would have an enterprise value of about $82bn including debt, well above its stock market value, which reached $63.8bn on Tuesday. Shares closed up 11% at $378. To take Tesla private, Musk would have to pull off the largest leveraged buyout in history, surpassing Texas electric utility TXU’s in 2007. Analysts say Tesla doesn’t fit the typical profile of a company that can raise tens of billions of dollars of debt to fund such a deal.
In a follow up tweet, Musk wrote: “I don’t have a controlling vote now and wouldn’t expect any shareholder to have one if we go private. I won’t be selling in either scenario.”
In the letter sent out to Tesla employees, Musk did not say that Tesla had secured funding. He wrote instead that “a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best”.
Musk described the “wild swings” in Tesla’s stock price as a “major distraction” and said the quarterly earnings cycle puts “enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term”.
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But Musk rejected the interpretation that he was simply seeking greater wealth or control of the company than the 20% he already owns. He wrote: “Basically, I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible.”
Saudi Arabia’s public investment fund (PIF), which invests its vast oil wealth, has quietly built up a stake of between 3% and 5% in the company, according to the FT. The investment would not have emerged until now because stakes of less than 5% do not need to be disclosed to the stock market.
PIF, which manages more than $250bn in assets, reportedly made an overture to Musk earlier this year, offering to invest money in the company in return for new shares.
Tesla countersued by 'whistleblower' it accused of sabotage and shooting threat Read more
Tesla ignored the approach, prompting PIF to begin acquiring shares in the company through stock markets, with the assistance of JP Morgan.
Analyst Gene Munster, a managing partner at venture capital firm Loup Ventures, told Bloomberg: “Elon Musk does not want to run public companies. His missions are big and make it difficult to accommodate investors’ quarterly expectations. Our guess is there is a one-in-three chance he can actually pull this off.”
No Wall Street bank contacted by CNBC said it was aware of any transaction or had any knowledge of commitment to funding a leveraged buyout of Tesla.
The Securities and Exchange Commission (SEC) also declined to comment on the matter.
The confusion increased speculation that Musk was engaged in a stunt – which could backfire if Musk is found to have violated fiduciary directives governing how senior executives at publicly-held companies are permitted to release information that could affect a firm’s stock price.
In 2013, the SEC ruled that companies are allowed to use social media outlets like Facebook and Twitter to announce news. But many thought Musk could be making a pun by twice tweeting “420” – an abbreviation of 4/20, code for the consumption of cannabis.
Musk’s fondness for making statements via Twitter has backfired in the past. He attracted furious criticism after baselessly calling a British diver who helped rescue the boys trapped in a flooded cave in Thailand a “pedo”. Tesla’s share price dropped and Musk was forced to apologise.
