Musk may take Tesla private
CEO declares he has funding for proposal; company’s share price spikes more than 10 percent
In what may have been his most attentiongetting tweet to date, Tesla CEO Elon Musk proclaimed Tuesday on Twitter that he is considering a plan to take Tesla private and has secured funding for such a possibility.
The move sent shock waves through Wall Street and boosted Tesla’s share price by more than 10 percent. Given the mercurial Musk’s history of sometimes cryptic and humorous tweets, many initially wondered if he was serious. Trading was suspended a few hours after the tweet until the company clarified its intentions — which it finally did by releasing a blog post that Musk had sent to Tesla employees.
In the post, he suggested he wanted to take the company private because it would allow Tesla itself to execute a long-term vision for the electric carmaker, which is the most valuable American car company but has never made an annual profit, rather than being shaped by the shortterm whims of Wall Street.
“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,” Musk’s blog post said.
While many frustrated CEOs have dreamed of escaping market pressures, the obstacles to
taking Tesla private would be formidable: Such a move would apparently be the largest leveraged buyout in history. There was no indication beyond Musk’s claim to have the funding as to where he would get such a whopping amount of cash.
Musk’s unconventional delivery through Twitter of price-sensitive news affecting Palo Alto-based Tesla’s shares also raised some eyebrows and questions about whether he might have violated any disclosure regulations — although there was no consensus that a violation had occurred.
Gene Munster, technology analyst and director at Loup Ventures, who has followed Tesla for several years, said that with all the ongoing questions looming over the electric carmaker
— about everything from how much it spends on its operations, to the company’s likelihood of turning a reliable profit, and the constant spotlight on its carproduction targets — he isn’t surprised that Musk might want to take Tesla private.
Musk’s other company, SpaceX, is private, and he has often talked of how much more efficiently it can be run.
“Elon Musk does not want to run public companies,” Munster said. “His missions are big and make it difficult to accommodate investors’ quarterly expectations.”
But Munster wasn’t completely sold on the possibility that Tesla could end up becoming a private company. “Our guess is there is a 1-in-3 chance he can actually pull this off and bring Tesla private,” he said.
The fun got started with Musk’s tweet Tuesday
morning: “Am considering taking Tesla private at $420. Funding secured.” The $420 in the tweet referred to the Tesla share price at which the company would potentially be taken private.
After posting some more tweets on the matter, Musk delivered the blog post by around 12:30 p.m. PDT. He stressed that a final decision on taking Tesla private has not yet been made and then detailed why he thinks going private “is the best path forward” for the company.
“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. “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 longterm.”
Tesla shares rose to almost $367 a share Tuesday before trading in the stock was halted at 11:08 a.m. PDT. When trading resumed at 12:45 p.m., Tesla shares surged again and closed with a gain of almost 11 percent on the day, at $379.57.
Should Tesla’s stock hit the $420-a-share price that Musk is eyeing for taking the company private, it would give Tesla a market capitalization of more than $71 billion. The biggest leveraged buyout currently on record is that of Texas power company TXU, which a consortium of private-equity companies took private for about $32 billion in 2007.
Musk sought to gain his shareholders’ support for the move, saying they would be given the choice of remaining investors in a privately held Tesla or cashing
out at $420 a share.
“My hope is for all shareholders to remain,” Musk said. “But if they prefer to be bought out, then this would enable that to happen at a nice premium.”
Clement Thibault, senior analyst with Investing.com, said Musk’s idea to take Tesla private raises “a lot more questions than answers at this point,” but he also believes that Musk could pull the deal off, if that’s his goal.
“Everything is possible with enough money, which he claims to have secured,” Thibault said. “Taking the company private would potentially allow Musk to reign supreme and reduce the pool of people holding him accountable. It is, obviously, a legitimate course of action.”
Musk’s initial tweet about Tesla possibly going private came after the Financial Times reported Tuesday that Saudi Arabia’s sovereign wealth fund had accrued a roughly $2 billion stake in Tesla.
After disclosing his proposal, Musk tried to allay any fears from Tesla shareholders about whether he is looking to cash out of the company. Musk owns about 20 percent of Tesla’s outstanding shares, which were worth almost $13 billion based on Tuesday’s closing stock price.
“I don’t have a controlling vote now & wouldn’t expect any shareholder to have one if we go private. I won’t be selling in any scenario,” tweeted Musk.
Musk went on to say in his blog post that the idea behind taking Tesla private “has nothing to do with accumulating control for myself,” and he doesn’t see his ownership stake being “substantially different” should Tesla end up going private.