Doubts grow about Musk's drive to take Tesla private

12 August, 2018, 00:36 | Author: Regina Silva
  • Tesla CEO Elon Musk has offered no evidence to back up a tweet stating he had “funding secured” to take the company private.
David Paul Morris  Bloomberg

It didn't take long for the euphoria to fade.

Musk said on Twitter on Tuesday that he was considering withdrawing from the market the stock price of the deficit electric auto manufacturer at a price of U.S. $ 420 per share, a move that would value an eventual agreement in excess of USA $ 70 billion.

It's also possible Musk has some unconventional plan that would take Tesla private without using traditional sources.

Tesla shares fell 2.4 per cent to US$370.34 on Wednesday after closing up 11 per cent on Tuesday.

Going private is one way to avoid scrutiny by the public market as Musk and the company tackle those challenges. On Wednesday, less than 24 hours after Musk's initial tweets, company board members said they had been made aware of Musk's plan last week.

The dearth of details could be problematic.

Investors - along with the SEC - are raising concerns about CEO Musk's proposal to take Tesla private. "Something that might happen?" said Ira Matetsky, a partner at Ganfer & Shore in NY, outlining questions the SEC might ask. Judith Burns, an SEC spokeswoman, declined to comment.

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The agency declined to comment and Tesla did not immediately respond to requests for comment. They said he had "addressed the funding for this to occur", without providing details.

Munster estimates Musk will need $25 billion to $30 billion to buy out all the Tesla shareholders who want to sell at $420.

"They're being bombarded with questions that we don't think are as relevant to the long-term value of the company", said Sam Korus, an analyst for ARK Investment Management, which had 443,874 Tesla shares as of June 30. The courts have upheld the right of companies to release news by tweet, but they and their managers still must live with specific guidelines. The problem may be that Musk amply has demonstrated since he came into the public eye more than a decade ago that he is, in fact, a man of many visions, all of which he seems passionate about. "I wish we could be private with Tesla", he told Rolling Stone in an interview published in November. Bloomberg News, which first reported on that meeting, said the talks failed to progress due to disagreements over ownership.

Other ventures also got the "funding secured" treatment. CNBC reported that officials hope a privatization program, including the sale of 5% of oil giant Saudi Aramco, will raise $300 billion to help fund the creation of NEOM, which is under construction, and that more money will be invested by the private sector.

Tesla's board earlier on Wednesday said it was evaluating taking the company private, which would be the biggest leveraged buyout of all time.

There are plenty of other reasons to doubt Musk's plan. "Would create special objective fund enabling anyone to stay with Tesla".

Morgan Stanley analyst Adam Jonas said investors would be slow to forgive if no buyout transpires. 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. "It may be challenging for Tesla shareholders to fathom the "forget-about-the-going-private-thing-let's-go-back-to-normal" scenario".

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