Tesla: Musk’s tweet a bridge too far?

Kuwait Times - - Analysis -

Tesla chief ex­ec­u­tive Elon Musk got into le­gal hot wa­ter this week af­ter an­nounc­ing on Twit­ter he had suf­fi­cient fi­nanc­ing al­ready in hand to take the electric au­tomaker pri­vate. Many in US fi­nan­cial cir­cles are won­der­ing where he will he get all this money, and have turned skep­ti­cal de­spite the rev­er­ence in which they nor­mally hold Musk, who founded the com­pany in 2003 to trans­form cars into tech mar­vels. The trans­ac­tion could amount to at least $50 bil­lion if Musk keeps his 20 per­cent stake in the com­pany.

On Tues­day, the iras­ci­ble en­tre­pre­neur tweeted that fund­ing for the trans­ac­tion at $420 a share had been “se­cured”, but of­fered no proof or doc­u­men­ta­tion. A clas­sic way of de-list­ing from stock mar­kets is a lever­aged buy­out, a deal in which in­vestors pur­chase a com­pany’s eq­uity and fi­nance this with loans. But none of the six ma­jor US banks has of­fered to lend the nec­es­sary amount to Musk, and they learned about the plans on Twit­ter with the rest of the pub­lic, sev­eral bank­ing sources told AFP. “We were not aware of any trans­ac­tion. We haven’t even heard from Tesla,” one source said, speak­ing on con­di­tion of anonymity.

And it is un­likely a Wall Street firm would risk back­ing Tesla, which is burn­ing through about $1 bil­lion a quarter and has not had a sin­gle prof­itable year in its 15 years of ex­is­tence, said an­other. Tesla bor­rowed at hefty in­ter­est rates last year, the per­son said, an ad­di­tional cost bur­den for a com­pany that had only $2.2 bil­lion in cash flow at the end of June. The sources said any po­ten­tial cred­i­tor would have to con­sider whether Tesla will be able to fi­nance its op­er­a­tions once it goes pri­vate.

US mar­ket reg­u­la­tors are re­port­edly step­ping up their scru­tiny of Musk’s claim and have asked Tesla if the CEO’s re­marks were gen­uine. Se­cu­ri­ties laws for­bid mar­ket ma­nip­u­la­tion by cor­po­rate lead­ers who an­nounce pend­ing stock pur­chases or sales when they have no in­ten­tion or no means of car­ry­ing them out.

It is un­likely a Wall Street firm would risk back­ing Tesla

De­bat­ing Musk’s cred­i­bil­ity

Tesla has been tar­geted by short sell­ers - the hedge fund man­agers Jim Chanos and David Ein­horn in par­tic­u­lar - who are bet­ting on the com­pany’s fail­ure and, ac­cord­ing to S3 part­ners, have lost more than $4.4 bil­lion since Jan­uary as Tesla’s share price rose. They have fre­quently been the tar­get of Musk’s ire, and in an­nounc­ing the plan this week he cited the ad­van­tage of get­ting away from short-term pres­sures and the “wild swings” in the stock price. Thomas Far­ley, former head of the New York Stock Ex­change op­er­a­tor NYSE Group, said Wed­nes­day on Twit­ter the mat­ter would be an “easy one” for the SEC to in­ves­ti­gate. “Ask TSLA to show you the agree­ment(s) signed by their fund­ing source(s) by 5 pm EST that demon­strates fund­ing is ‘se­cured’ and ‘cer­tain,’” he wrote, us­ing the com­pany’s ticker sym­bol. “If there is no such agree­ment, re­quire a state­ment by 5:30 pm. In­spire mar­ket con­fi­dence.”

In a re­search note, Bern­stein an­a­lyst Toni Sac­conaghi said, “if no firmer de­tails emerge... in­vestors would likely in­creas­ingly de­bate Musk’s cred­i­bil­ity and seem­ingly un­healthy fo­cus on the shares’ price and volatil­ity.” Tesla de­clined to com­ment when con­tacted by AFP. “Per­haps he has a few an­chor in­vestors and as­sumes they will work to find more cap­i­tal,” said Ni­cholas Co­las, co­founder of DataTrek re­search.

Musk, who en­vi­sions send­ing tourists to the Moon and slash­ing travel times be­tween ma­jor cities with ad­vanced trains, is re­spected in Sil­i­con Val­ley, where he could tap ven­ture cap­i­tal. He could also seek fund­ing from sov­er­eign wealth funds such as Saudi Ara­bia’s, which has just taken a stake in Tesla es­ti­mated at be­tween three per­cent and five per­cent.

Fur­ther­more, JP Mor­gan Chase, Gold­man Sachs, Mor­gan Stan­ley and Cit­i­group are look­ing at dif­fer­ent ways a deal might be struc­tured, bank­ing in­dus­try sources say. One pos­si­bil­ity in­volves a deal that would per­suade most small share­hold­ers to sell their stakes. This way, there would be no floating cap­i­tal even if shares con­tin­ued to be trad­able on mar­kets. The cost of such a ma­neu­ver, bank­ing sources say, would be more af­ford­able, some­where be­tween $10 bil­lion and $20 bil­lion. —

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