Elon Musk’s tweet makes unleashes confusion for Tesla
AFTER Elon Musk announced this month that he was considering taking his auto company private, he sent an email to employees giving this as a reason: “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.”
Yet corporate governance experts say things became dramatically more complicated for chief executive Musk and Tesla’s board because he sent out an unorthodox tweet Aug 7 saying that funding was ‘secured’ to take the electric car company private. The added complications include a US Securities and Exchange inquiry and investor lawsuits initiated by the tweet.
“The expressed reason why Musk wanted to take the company private was because of the distraction of volatility,” said Charles Whitehead, a professor at Cornell Law School who studies corporate governance and financial regulation.
“But he has made that distraction 10 times greater than it ever was,” Whitehead said, compounded by the SEC inquiry, the lawsuits and “the inherent problems around going private in general.”
Tesla’s directors now face not only the fallout from Musk’s tweet, but also, for a special committee of three independent directors, the thorny evaluation of a management-backed buyout. The process can lead to conflicts of interest and clashes with the company’s management, corporate law experts say.
“This is a very busy board of directors,” said Joseph Grundfest, a Stanford University law professor and former SEC commissioner. “They’re dealing with issues at ludicrous speed,” an allusion to a feature of topend Tesla cars that enables them to accelerate very quickly. Buyouts backed by management, Whitehead said, are “inherently troubling” because they raise questions about whether investors will get a fair price in a sale.
“It begs the question: If the price the managers are prepared to pay today is greater than the price the stock is trading today, why isn’t the stock there in the first place?” he said. “And even that isn’t necessarily full value, because you expect managers to make something for themselves.”
The independent directors evaluating the deal, meanwhile, have to negotiate with managers they may know well to get the best price for shareholders.
“It puts the board in a terrible position,” said Charles Elson, the director of a corporate governance program at the University of Delaware. This week, Tesla said in a statement that the company had formed a special committee of three of its nine directors: Brad Buss, Robyn Denholm and Linda Johnson Rice.
Tesla also said it had retained the law firm Latham & amp; Watkins as legal counsel and plans to retain an independent financial adviser. The company said the committee “has the full power and authority of the board of directors to take any and all actions on behalf” of the full board “to evaluate and negotiate a potential” deal to take Tesla private, as well as alternatives.
The company also said it had not received a formal proposal from Musk, ‘ nor has it reached any conclusion as to the advisability or feasibility of such a transaction.’
In a statement made the day after Musk’s tweet, several members of the board said Musk had ‘opened a discussion with the board about taking the company private’ and had met ‘several times over the past week,’ but they provided no further details about the proposal or its funding. — The Washington Post