Elon Musk goes feral
It started with a tweet. “Am considering taking Tesla private at $420. Funding secured.” The chain of events that followed included more tweets, a blog post, a regulatory probe, shareholder lawsuits and a blindsided board.
Now, everyone’s kind of wondering if Elon Musk has gone feral.
The episode — and it can only be described as an episode — has caused Tesla’s stock to swing wildly since last Tuesday, when the founder of the electric carmaker first took to social media to disseminate what was essentially market-moving information. This Monday’s blog post caused a dramatic jump in Tesla shares and a halt in trading.
“Going back almost two years, the Saudi Arabian sovereign wealth fund has approached me multiple times about taking Tesla private,” Musk says in the post. “Recently, after the Saudi fund bought almost 5% of Tesla stock through the public markets, they reached out to ask for another meeting. That meeting took place on July 31 … I left the July 31 meeting with no question that a deal with the Saudi sovereign fund could be closed.”
Only, funding has not been secured, a term sheet hasn’t been prepared and no advisers have been hired to work on a supposed deal.
The US Securities & Exchange Commission is looking into Tesla because it may have violated a rule that prohibits publicly traded companies from announcing plans to buy or sell securities if executives don’t intend to follow through, don’t have the means to complete the deal or are trying to manipulate the stock price.
I have to pause here to remind you of Musk’s recent antics: lambasting analysts for asking “bonehead” questions; going on a Twitter tirade against investors betting against Tesla’s stock; and accusing a disgruntled employee of sabotage.
To be sure, there’s nothing wrong with a bit of quirk. Who wants to be vanilla? But as the CEO of a publicly traded company, you can’t just tweet about key strategy changes and poohpooh public-market disclosure.
Musk, who owns about 20% of Tesla, says he was just making an effort to be “completely forthcoming” with shareholders about his desire to take the company private.
e:
I want to be free
Privatising Tesla means no more of the quarterly reporting that, according to Musk, puts enormous pressure on Tesla to make decisions that may be right for a given quarter but not necessarily right for the long term. Remember that Tesla has fallen behind on performance targets a few times — it is struggling to turn out its first mass-market vehicle, the Model 3. That said, despite never having made a profit, Tesla is valued north of $60bn — because people do buy into Musk’s long-term vision for electric cars.
Going private also means keeping key information out of the public arena (competitive edge and all that).
It would also mean no more short sellers (investors who are betting the company’s stock will fall).
I tell you, though, there is doubt among investors as to whether going private — and at a price that would put a value of $72bn on the carmaker — will actually materialise.
Tesla hasn’t turned a profit, it has a huge debt load ($10bn) and it is still burning through cash alarmingly.
In fact, the firm would need to take on another $23.6bn in debt to buy out even a third of its current shareholders. It has nowhere near the free cash flow to do this. And, with its already heavy debt-servicing obligations, who would give it another $23.6bn?