National Post (National Edition)
‘Funding secured’ by Saudi meeting: Musk
SANFRANCISCO•ELON Musk revealed that Saudi Arabia has long been interested in taking Tesla Inc. private, which gave the him the confidence last week to drop the bombshell that he was considering the blockbuster potential deal.
Saudi Arabia’s sovereign wealth fund first approached Musk in early 2017 about taking Tesla off the market, he wrote in a blog post Monday. He confirmed the Public Investment Fund recently bought an almost five-percent stake and is interested in helping take Tesla private, as Bloomberg News reported Sunday.
Musk described a meeting last month in which a managing director for the fund expressed regret that such a transaction hadn’t moved forward. “I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving,” Musk wrote, adding that this is why he tweeted on Tuesday that he had “funding secured” to take Tesla private at US$420 a share.
The blog post is the latest in what’s been a piecemeal approach by Musk, 47, to explaining how he intends to pull off taking his moneylosing electric-car maker private at a more than Us$70billion market capitalization. The billionaire chairman and chief executive made no public mention of the Saudi fund’s involvement until Monday. Tesla’s board released a three-sentence-long statement last week that only vaguely addressed how the transaction would be funded and didn’t bring up the kingdom’s potential role.
Several investors have since sued Musk and Tesla, claiming the share price was manipulated. The U.S. SEC is said to be intensifying its scrutiny of the company and its CEO after having started gathering general information about Tesla and Musk’s earlier public pronouncements about manufacturing goals and sales targets.
One of Tesla’s biggest critics, Vertical Group analyst Gordon Johnson, read Musk’s blog post as walking back his “funding secured” claim last week. Johnson cited Musk’s statement Monday that the Saudi fund’s support for taking Tesla private was “subject to financial and other due diligence and their internal review process for obtaining approvals.”
“He is specifically stating that funding is not secured, and I think that’s a big deal,” Johnson, whose US$93 price target for Tesla’s stock is the lowest among Wall Street analysts, said on Bloomberg Television. “The question then becomes, what does the SEC do here, and do the shareholders stick with him?”
Tesla bull Gene Munster of Loup Ventures said the blog post “slightly increases” the odds that the company will be taken private. He cited Musk’s commentary and Bloomberg’s report on how the Saudi fund was interested in getting involved as part of the kingdom’s efforts to hedge against the world becoming less reliant on oil. “The question, ‘Where would the money come from?’ has been answered,” said Munster. He estimates a greater than 50-per-cent likelihood that Tesla will be privateinayear,withmusk trying to limit investors like the Saudi fund to holding a stake of 20 per cent or less, which would be in line with his holding in the company.
Tesla shares rose 0.3 per cent to US$356.41.
Musk wrote that he’s continued to communicate with the Saudi fund managing director, whom he didn’t identify. He said he’s reaching out to Tesla’s other large shareholders and that most of the capital required to take the firm private will be funded by equity, rather than debt.
“The US$420 buyout price would only be used for Tesla shareholders who do not remain with our company if it is private,” he wrote, meaning the capital needed to be raised would be “dramatically” less than US$70 billion.