Here's what four experts are saying on Tesla potentially going private 13 Hours Ago | 01:49
Tesla CEO Elon Musk stunned investors Tuesday with a string of tweets saying he is considering taking the company private, in what would be the largest deal of its kind.
"Am considering taking Tesla private at $420. Funding secured," Musk said in a tweet shortly before 1 p.m. Musk discussed the plans further in a blog post later Tuesday.
From there Musk tweeted several times. In responses to questions on Twitter, Musk said he will ensure the prosperity of shareholders "in any scenario." If Tesla went private, current investors could keep their stakes in Tesla through a special fund, or sell their shares at $420, he said.
Shares jumped after Musk's first tweet, trading as high as $371.15 before giving back gains. Later the stock was halted for more than an hour. When it reopened shares surged more than 10 percent.
Tesla shares were already trading higher on a report of a new stake from the Saudi Arabia sovereign wealth fund.
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.
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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.
If the transaction got done at $420 per share, Tesla would be valued at just over $70 billion, making it the biggest deal in which a company is taken private.
Although Tesla has become the most valuable American car company, it has yet to turn an annual profit since its founding in 2003. And its chief executive, a 47-year-old native of South Africa, has come under increasing pressure as he has scrambled to increase production of the Model 3, a midsize sedan that he is counting on to drive up revenue and enable the company to become profitable.
Still, this is not the way multibillion-dollar leveraged buyouts are typically announced. Companies would normally line up banks, private equity firms or other deep-pocketed investors to agree in advance to provide money to finance the purchase of shares.
Officials representing a number of large banks and investment funds said on Tuesday that they had not talked with Tesla about financing a buyout, although it is possible the company had secured funding from other sources.
Mr. Musk’s comments on Tuesday — mentioning the specific price of a possible buyout and declaring that Tesla had already arranged funding — were virtually guaranteed to send the shares flying. Still, while it was unusual for a chief executive to make a market-moving announcement on Twitter, there is nothing improper about it on its face.
In 2013, the Securities and Exchange Commission said it was permissible for companies, and people acting on their behalf, to make announcements using social media platforms like Twitter and Facebook. It said companies had to alert investors in advance that those would be channels for important corporate news. And Tesla did so, in a filing in 2013.
But the S.E.C. has also advised that intentional releases of market-moving information on social media platforms or websites must be accompanied by a simultaneous release to the broader public. The delay between Mr. Musk’s tweet and Tesla’s corporate announcement could be of interest to the S.E.C., said Michael Liftik, a former deputy chief of staff at the commission who is now a partner at the law firm Quinn Emanuel Urquhart & Sullivan.
Tesla may not be a public company for long if Elon Musk follows through on his most recent tweets. The overly outspoken CEO tweeted that he is considering taking Tesla private at $420 a share.
A few hours later, Tesla trading was halted, but not before the stock jumped to $371 from $358.
The initially scantily detailed tweet was not paired with a formal Securities and Exchange Commission filing. The SEC declined to comment on whether that violated disclosure rules. However, in 2013 the SEC said social media was a “perfectly suitable“ way to disseminate information, as long as investors knew to look at that platform for information.
According to that caveat, Musk may be in the clear. The Tesla CEO often uses his Twitter to make announcements about the company. And it certainly wouldn’t be the first time his tweets or words moved Tesla’s stock price — for better or worse.
The CEO has several weeks of inflammatory tweets under his belt — ranging from confusing to downright bizarre — and a first-quarter earnings call that sent Tesla’s stock plummeting. In fact, Musk spent the last earnings call apologizing to analysts for calling their questions “boneheaded.”
Going private would, at the very least, alleviate some of the weight being put on Musk’s tweets. But, broadly speaking, it would mean Tesla would no longer be subject to many public disclosure rules. That would make it easier for the electric car manufacturer to operate without the pressure of meeting publicly set deadlines for production and profitability.
Going private may be a welcome change for the company, which is the most-shorted stock on Wall Street — particularly as Tesla attempts to make the critical move from a luxury automaker to a mass-market one while also becoming profitable.
The series of tweets also comes just after the Financial Times revealed that the Kingdom of Saudi Arabia’s sovereign wealth fund has a $2 billion stake in Tesla.
Musk continued tweeting about taking the company private, saying that he would not sell the company and planned to remain as the CEO. Musk also said that long-term investors will be able to remain invested in the company through a special-purpose fund. He later said that current shareholders could choose to sell at the $420 a share price or hold on to their shares and go private.
Though the company posted another record-high loss of $717.5 million in the second quarter, Musk says he has secured the funding to take the company private if he decides to do so.
We’ve reached out to Tesla for comment. Musk sent this email to Tesla employees today.
