Musk’s mus­ings on tak­ing Tesla pri­vate show it may be best route

Irish Independent - Business Week - - Technology - Liam Den­ning, Bloomberg

THE man­ner in which Elon Musk dis­closed this weekend that he was “con­sid­er­ing tak­ing Tesla pri­vate” shows why this would be the best pos­si­ble out­come for all in­volved.

The stock jumped 4pc on Musk’s tweet, on top of an ex­ist­ing rally that had taken hold 30 min­utes ear­lier on a ‘Fi­nan­cial Times’ re­port that Saudi Ara­bia had bought stock in the com­pany ear­lier this year.

Is Musk se­ri­ous? Who knows, but tele­graph­ing your take­out price while you’re only “con­sid­er­ing” things is, well, un­ortho­dox. That $420 fig­ure had many spec­u­lat­ing on Twit­ter it was just a joke about MJ, not M&A.

But Tesla even­tu­ally fol­lowed up Musk’s string of tweets with a blog post lay­ing out a ra­tio­nale for a deal that would, if done as a straight buy­out, be worth $68bn, fac­tor­ing out Musk’s ex­ist­ing stake.

The blog post went up al­most three hours af­ter Musk lobbed this into the mix, with­out an ac­com­pa­ny­ing SEC fil­ing or an ex-ante trad­ing sus­pen­sion (that didn’t hap­pen un­til the tweet had been up for more than an hour). It makes a mock­ery of pub­lic-mar­ket dis­clo­sure. Last week’s bro­mides about Musk’s com­po­sure on Tesla’s earn­ings call – tech­ni­cally known as ‘the bare min­i­mum’ for any other com­pany – haven’t aged well.

That’s why, even though this bizarre af­ter­noon raises yet more red flags around the com­pany, it would be a mercy if Tesla did ac­tu­ally go pri­vate.

A cou­ple of years ago, it would have been bet­ter if Tesla could have been an Uber-like uni­corn rather than a listed com­pany. Be­sides no longer hav­ing to worry about pesky stuff like the best way of dis­clos­ing ma­te­rial events (for ex­am­ple), the com­pany could dis­pense with its panoply of short-term tar­gets on things like Model 3 pro­duc­tion, cash flow and prof­its.

As it is, those tar­gets sit oddly with the idea of Tesla build­ing a sus­tain­able busi­ness for the long term, which is what ul­ti­mately un­der­pins its sky-high mul­ti­ples. The com­pany could also be led by a CEO who doesn’t spend even a se­cond of his time ob­sess­ing about burn­ing “the shorts”. And that highly-paid, and largely in­vis­i­ble, board could prob­a­bly be re­vis­ited, too (al­though I con­fess I’m cu­ri­ous who ex­actly would sit on the spe­cial com­mit­tee for this deal).

Judg­ing by the blog post, Musk seems to yearn for this him­self: “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. Be­ing pub­lic also sub­jects us to the quar­terly earn­ings cy­cle that puts enor­mous pres­sure on Tesla to make de­ci­sions that may be right for a given quar­ter, but not nec­es­sar­ily right for the long-term. Fi­nally, as the most shorted stock in the his­tory of the stock mar­ket, be­ing pub­lic means that there are large num­bers of peo­ple who have the in­cen­tive to at­tack the com­pany.”

There are at least two prob­lems with Tesla’s ex-post jus­ti­fi­ca­tion for the tweet. One, there’s no men­tion of the fi­nanc­ing that Musk claimed had been “se­cured.” Is it re­al­is­tic to raise that much fund­ing to buy out an un­prof­itable com­pany? The only pos­si­ble re­sponse at this point is an­other ques­tion: Is it re­al­is­tic that an un­prof­itable com­pany was val­ued al­ready at $61 bil­lion?

The se­cond prob­lem is that this all got strewn across so­cial me­dia hap­haz­ardly less than a week af­ter Tesla reaf­firmed prof­itabil­ity and pos­i­tive cash flow are ap­par­ently im­mi­nent. Achiev­ing that, rather than tak­ing Tesla pri­vate, would be the ul­ti­mate ri­poste to short-sell­ers. So why do this now?

An in­trigu­ing el­e­ment of all this is Tesla’s idea of let­ting in­vestors that didn’t want to cash out stay in a pri­vate en­tity, pos­si­bly with pe­ri­odic gates to sell. This would ap­peal to diehard Tesla bulls dis­mayed at the thought of be­ing capped out at a mere 143 times ad­justed 2019 earn­ings. And since they clearly don’t mind an­other red flag be­ing put on the pile – the stock ral­lied fur­ther af­ter trad­ing re­sumed – hold­ing shares with­out the stric­tures of a pub­lic com­pany wouldn’t bother them. The only thing they might miss is the adren­a­line rush of trad­ing their way through an oth­er­wise bor­ing week­day af­ter­noon.

As a mar­ket op­er­a­tor, Tesla is a study in ex­tremes. Its 47pc an­nu­alised gain since 2010 has done noth­ing to quiet an ex­ceed­ingly vi­cious war of words be­tween Musk and his de­trac­tors.

Musk gets many things a growth com­pany wants from pub­lic mar­kets: a sky-high stock, loyal share­hold­ers, cap­i­tal to ex­pand. But they’ve never been enough to give him peace of mind.

Elon Musk says swings in Tesla’s stock price is a dis­trac­tion

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