Elon Musk considers taking Tesla private, jolting stock markets
Elon Musk has become one of the world’s most prominent chief executives, and a billionaire several times over, by boldly making big bets on ideas that few others thought possible.
He started a private rocket company that sends materials into space and plans to send astronauts soon. He is creating machines to bore giant tunnels through the earth. And Tesla Inc., where he serves as chief executive, has succeeded in creating an Apple-like brand of electric cars.
Through it all, he has shown a maverick—some would say arrogant—management style. On Tuesday, he may have outdone himself.
In a terse and cryptic Twitter post, he declared that he was ready to take Tesla private. The stock market that made his company worth over $60 billion wasn’t worth the hassle.
“Am considering taking Tesla private at $420,” he wrote. “Funding secured.”
Tesla’s stock was already up sharply on a report that Saudi Arabia was taking a sizable stake in the company. But investors were left to puzzle out the implications of Musk’s proposition, its relationship to the Saudi report, and even the authenticity of the tweet. And so, starting at 12:48 p.m., the market that Musk threatened to forsake went into a frenzy.
At 2:08 p.m. Eastern time, with shares up more than 7 percent for the day, trading was halted pending news— news that finally came shortly before 3:30.
“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, all of whom are shareholders,” Musk said in a statement to Tesla employees that was released by the company. He cited the demands of the quarterly earnings cycle and the damage wrought by investors who are betting against the company.
“I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve,” the statement said.
Musk said that no final decision had yet been made about taking the company private, and that any such proposal would have to be approved by shareholders.
He outlined a plan under which shareholders could be bought out for $420 a share—a 20 percent premium over the stock price after the company’s second-quarter earnings call last week— or they could remain as private shareholders.
“This has nothing to do with accumulating control for myself,” he wrote. “I own about 20 percent of the company now and don’t envision that being substantially different after any deal is complete.”
Tesla trading resumed 15 minutes before the end of the trading session, and the shares added to their gains, closing at $379.57, up 11 percent.
Musk’s comments Tuesday—mentioning the specific price of a possible buyout and declaring that Tesla had already arranged funding—were virtually guaranteed to send the shares flying. Still, while it was unusual for a chief executive to make a market-announcement on Twitter, there is nothing improper about it on its face.
In 2013, the Securities and Exchange Commission said it was permissible for companies, and people acting on their behalf, to make announcements using social media platforms like Twitter and Facebook. It said companies had to alert investors in advance that those would be channels for important corporate news. And Tesla did so, in a filing in 2013.
But the SEC has also advised that intentional releases of market-moving information on social media platforms or websites must be accompanied by a simultaneous release to the broader public. The delay between Musk’s tweet and Tesla’s corporate announcement could be of interest to the SEC, said Michael Liftik, a former deputy chief of staff at the commission who is now a partner at the law firm Quinn Emanuel Urquhart & Sullivan.
“Simultaneously really means simultaneously,” he said. And he said a tweet would be held to the same standard of factuality as a news release.
Others pointed out that Musk’s tweet could have opened his company up to legal exposure from investors with financial incentives to sue.
“What they have to show is there was a material misstatement, in these loose statements, by Mr. Musk,” said John C. Coffee Jr., a professor at the Columbia Law School’s Center on Corporate Governance. Coffee said the statement “funding secured” could be a legal gray area where plaintiffs’ attorneys see an opportunity to make a case.
“That’s a very broad statement about what is still an extraordinarily amorphous transaction,” Coffee said.
The SEC had no comment, and Tesla would not comment beyond what was in Musk’s statement to employees.
In Twitter exchanges Tuesday, Musk said becoming a private company would “save a lot of headaches” and noted that it was a move taken by Dell Technologies. The computer company, founded by Michael S. Dell, became a private enterprise in 2013, though it recently moved to sell shares to the public again.