Fu­ri­ous in­vestors slam the brakes on Tesla’s buy­out bid

The Sunday Telegraph - Money & Business - - Front page - By Alan Tovey and Matthew Field

ELON MUSK’S Tesla buy­out plan has hit the skids af­ter in­vestors crit­i­cised the bil­lion­aire for try­ing to take it pri­vate on the cheap.

One lead­ing share­holder said the com­pany could be worth four times more than Mr Musk said he was plan­ning to bid. “When you are in­vest­ing on a 10-year time­line you can’t put a sin­gle value on some­thing … If Tesla does be­come dom­i­nant in au­ton­o­mous driv­ing or electric ve­hi­cles, the value could be three or four times $420,” the in­vestor said.

One source with knowl­edge of sev­eral in­vestors’ think­ing said: “They are ex­tremely an­gry at $420. They’re frus­trated be­cause they have held on and be­lieve Tesla could be worth as much as $800.”

Mr Musk’s sur­prise de­ci­sion to re­veal the plan on Twit­ter also raises le­gal con­cerns, with US reg­u­la­tor the Se­cu­ri­ties and Ex­change Com­mis­sion un­der­stood to be in­ves­ti­gat­ing whether he breached rules in a way that could be seen as mar­ket ma­nip­u­la­tion.

Doug Dav­i­son, a lawyer at Lin­klaters, said: “There are a lot of gov­er­nance is­sues. If it was a le­git­i­mate sig­nif­i­cant ma­te­rial devel­op­ment, Tesla would be re­quired to file [reg­u­la­tory doc­u­ments] within four days. No one is sure if he has fund­ing se­cured.”

In­di­vid­u­als and in­sti­tu­tional in­vestors own more than 70pc of the shares. Mr Musk has 20pc.

All in­fra­struc­ture spend­ing is a ques­tion of choice. There are any num­ber of wor­thy re­cip­i­ents, but fi­nite re­sources mean that not all of them can be cho­sen. Some­times the Gov­ern­ment gets it right, more of­ten wrong. A case in point would seem to be the emerg­ing white ele­phant of High Speed Two.

A re­cently leaked re­port for the Gov­ern­ment’s In­fra­struc­ture and Projects Author­ity found the whole thing to be “fun­da­men­tally flawed” and warned that it could over­shoot its al­ready jaw-drop­ping bud­get of £56bn by as much as 60pc.

This might seem bad enough, but the fact that the re­port was sub­mit­ted two years ago – months be­fore Par­lia­ment ap­proved the scheme – but was kept un­der wraps, makes the whole thing dou­bly scan­dalous.

Lord Man­del­son has ad­mit­ted that the ev­i­dence for back­ing the project al­ways looked “flimsy”, and that Labour min­is­ters orig­i­nally gave it the go-ahead only as a way of up­stag­ing the Tories. Some £3bn has al­ready been spent on prepa­ra­tions and buy­ing up land, so there is a sense in which the train has left the sta­tion and can­not now be stopped.

Yet the mis­placed sense of pri­or­ity is still quite gob­s­mack­ing. It is es­ti­mated that £30bn of in­vest­ment is re­quired to up­grade Bri­tain’s tele­coms net­work to full fi­bre and thereby put it on a com­pet­i­tive foot­ing with Ja­pan, South Korea and oth­ers that have al­ready made the leap.

The Gov­ern­ment is re­ly­ing on com­mer­cial in­vest­ment to do the job, but it is go­ing to take a long time, and even then tax­pay­ers are go­ing to have to cough up roughly 10pc of the cost to wire up ar­eas in­ca­pable of pay­ing for them­selves. Dig­i­tal in­fra­struc­ture is cen­tral to the fu­ture of the UK econ­omy, Jeremy Wright, the new Cul­ture Sec­re­tary, said in the Gov­ern­ment’s re­cent Fu­ture Tele­coms In­fra­struc­ture Review. In­deed it is; it’s hard to im­pos­si­ble to make the same case for HS2, which merely knocks half an hour off jour­ney times be­tween Birm­ing­ham and Lon­don us­ing what is al­ready a fast-age­ing tech­nol­ogy.

In­fla­tion­ary co­nun­drum

Peo­ple can never agree about in­fla­tion. I don’t mean its causes and im­pact. That de­bate re­quires an en­tire li­brary of re­search pa­pers all to it­self.

In­stead, I am talk­ing about how it should be mea­sured. Ev­ery­one ex­pe­ri­ences their own per­sonal rate of in­fla­tion, depend­ing on how they spend their money. Of­fi­cial rates, which are ag­gre­gates based on ag­gre­gates, will never ex­actly re­flect any­one’s ex­pe­ri­ence.

One thing chan­cel­lors since Gor­don Brown do seem to agree on, how­ever, is that the re­tail prices in­dex is a jolly poor mea­sure of it. “The ev­i­dence sug­gests it is likely to over­state in­fla­tion,” the Of­fice for Na­tional Statis­tics said in a re­cent anal­y­sis.

Mark Car­ney, the Gov­er­nor of the Bank of Eng­land, said six months ago that the time may fi­nally have ar­rived to “tran­si­tion away” from its use. This has prompted the House of Lords eco­nomic af­fairs com­mit­tee to launch an in­quiry into whether it should be abol­ished en­tirely, ex­pected to re­port in the au­tumn.

The an­swer to this ques­tion is no, as in­deed the na­tional statis­ti­cian con­cluded af­ter a con­sul­ta­tion six years ago. But its con­tin­ued use should cer­tainly be mod­er­ated.

With­out go­ing into the de­tail, let’s ac­cept the gen­eral con­sen­sus that the RPI isn’t a good mea­sure of in­fla­tion. So be it. But this doesn’t au­to­mat­i­cally mean it should be junked. In any case, we have been “tran­si­tion­ing away” from RPI for many years.

Brown be­gan the process by el­e­vat­ing the con­sumer prices in­dex – which com­plies more fully with the Euro­pean stan­dard – to the of­fi­cial mea­sure for in­fla­tion tar­get­ing pur­poses. This was ba­si­cally a wheeze, be­cause the CPI pretty con­sis­tently comes in quite a bit lower than the RPI – CPI in­fla­tion is cur­rently 2.3pc, while RPI in­fla­tion is 3.4pc – and it there­fore al­lowed in­ter­est rates to be lower than they per­haps other­wise would have been. CPI also took no ac­count of soar­way house price in­fla­tion, so it was an al­to­gether more con­ve­nient yard­stick po­lit­i­cally.

This mind­set has in­structed the way the Trea­sury has used the in­dices ever since. Most things that cost the Gov­ern­ment money have for in­dex­ing pur­poses been pro­gres­sively shifted on to the lower CPI mea­sure, thereby no­tion­ally saving money. Where the RPI is ca­pa­ble of flat­ter­ing the pub­lic fi­nances, how­ever, such as the us­ary of stu­dent loans and train fares, it has tended to be kept. The big ex­cep­tion to this ap­proach is in­dex linked gilts, which by con­ven­tion, have re­mained firmly in­dexed to RPI.

Min­is­ters can­not change the terms on the ex­ist­ing stock of in­dex linked debt, even if they might like to, as this would amount to a de­fault.

One of the few things UK gov­ern­ments have con­sis­tently got right down the cen­turies is that they don’t de­fault. That may be com­ing, by the way. But they could po­ten­tially save them­selves bil­lions over time by shift­ing new is­suance to CPI.

The saving would how­ever be largely il­lu­sion, be­cause mar­kets would merely ad­just the price they de­mand to re­flect the lower coupon.

By all means, let’s get rid of RPI for the pur­poses of stu­dent loans and train fares, but best not to med­dle with the Debt Man­age­ment Of­fice.

On­line mad­ness

You re­ally do have to pinch your­self as a re­minder that we still have a Con­ser­va­tive gov­ern­ment. The Trea­sury’s lat­est plan for rev­enue rais­ing is a spe­cial tax on on­line sales.

This might help level the play­ing field with bricks and mor­tar re­tail­ing, Philip Ham­mond, the Chan­cel­lor, said on the day House of Fraser went into ad­min­is­tra­tion. As is gen­er­ally agreed, House of Fraser’s demise is mainly a story of self-harm rather than on­line com­pe­ti­tion, but its plight has scarcely been helped by high busi­ness rates.

As this rev­enue de­clines, Ham­mond seeks al­ter­na­tives from imag­ined free-rid­ers on­line. That the cor­rect ap­proach to lev­el­ling is to cut taxes on phys­i­cal re­tail­ing, not sti­fle the growth of on­line, is be­ing wil­fully ig­nored.

‘There is a sense in which the train has left the sta­tion and can­not now be stopped’

An artist’s im­pres­sion of the new HS2 sta­tion at Eus­ton. Should it be a pri­or­ity in in­fra­struc­ture spend­ing?

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