Tesla board weighs CEO’s buyout bid as questions swirl
Board members at Tesla are evaluating CEO and Chairman Elon Musk’s $72 billion proposal to take the electric car maker private while government regulators look into whether the announcement of the potential deal meets legal requirements.
Six of Tesla’s nine members said in a statement Wednesday that Musk began talking with the board about the move last week. This included discussing how being a private company could better serve Tesla’s longterm interests. Board members met several times and also addressed funding for the move, according to the statement.
The eccentric Musk announced the bombshell move Tuesday on Twitter, writing that he had secured funding to buy Tesla Inc.’s shares at $420 each.
The Securities and Exchange Commission is now asking whether Musk’s nine-word tweet on the subject was factual, according to a Wednesday report in The Wall Street Journal. The newspaper cited unidentified people familiar with
the matter
Shares rose 11 percent Tuesday but fell more than 2 percent Wednesday to close at $370.34.
At $420 apiece, buying all of Tesla’s shares would cost about $72 billion, but Morgan Stanley analyst Adam Jonas wrote in a note to investors Wednesday that he expects about $50 billion in additional net debt. Musk owns about 20 percent of the Palo Alto company’s stock, so that likely would reduce the cost of the buyout.
Musk also said he intends to give Tesla’s existing shareholders the option of retaining a stake in the company through a special fund, if they want.
Jonas wrote that he understands Musk’s desire to avoid the pressures of quarterly earnings as a public company. But he said that he thinks those benefits could be outweighed “by the risks of added financial leverage, which can be even more strategically limiting.”
There still are nearterm execution risks around increasing Model 3 production and the ability to generate cash, Jonas believes.
“Adding as much as $50 billion of net debt to the capital structure would clearly intensify the outcomes of such an action,” he wrote.
Musk, his brother Kimbal and director Steve Jurvetson were not included in the statement from board members Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice and James Murdoch.
By taking Tesla private, Musk said he believes that the company will be able to focus on business without having to cater to investors’ fixation on how it is faring from one quarter to the next.
Tesla has posted a quarterly profit only twice in its history and has never made money during an entire calendar year.