Has Musk got the money to take Tesla private?
Should Elon Musk prove not to have funding in place, he could well find himself in hot water for attempted market manipulation.
Wednesday 8 August 2018 14:04, UK
It's almost impossible to know where to begin with Elon Musk's suggestion that he may take Tesla private.
For a start, there's the unorthodox way he announced the move, via Twitter.
Then there's a question over his motivation for making such a statement.
And then there's the claim that he already has funding for a 'take-private'.
They all roll into a situation, intertwined, that throws up more questions than answers - and not just for Mr Musk himself but also for America's financial regulators.
Firstly, there's the tweet, "Am considering taking Tesla private at $420. Funding secured."
Mr Musk posted this tweet half an hour after the Financial Times published a report that Saudi Arabia's sovereign wealth fund had assembled a stake of between 3-5% in the electric carmaker that sent its shares up by 5%.
The timing of this tweet is curious.
US regulators, though, may be more interested in its veracity.
That a company is considering taking itself off the stock market, at a specified price, is price-sensitive information that ought normally to be disseminated via a stock exchange announcement.
To put out such information via a tweet is something that ought to raise eyebrows at the US Securities & Exchange Commission (SEC), although it has shown itself to be broad-minded when companies such as Netflix have published potentially price-sensitive information about themselves on social media platforms.
However, should Mr Musk prove not to have funding in place for a 'take-private', he could well find himself in hot water for attempted market manipulation.
Mr Musk certainly has plenty of reasons to seek to get his share price up.
He has had a troubled relationship with the Wall Street analysts paid to follow the company's fortunes and, while last week's conference call to discuss Tesla's latest results saw Mr Musk in peace-making mode, a previous call in May in which he railed against those asking "boring bonehead questions" did a lot of damage to his reputation.
It came weeks after Mr Musk posted a series of tweets around April Fools' Day which claimed, among other things, "we are sad to report that Tesla has gone completely and totally bankrupt. So bankrupt, you can't believe it."
For shareholders who had seen Tesla's shares suffer their worst-ever week since flotation, though, it was no laughing matter.
The animosity flows both ways.
While some investors and analysts feel Mr Musk has shown them a lack of respect, the entrepreneur himself takes personally a lot of criticism received by the company, which has found its prospects regularly and robustly criticised on Wall Street.
Tesla has found itself in the sights of short-sellers - speculative investors who borrow shares in a company and immediately sell them in anticipation of the price falling, buying them back later at a lower price - who believe its shares are over-valued.
Fully some 27% of Tesla's shares are currently on loan - implying that there are plenty of investors who expect its shares to fall - and critics have had plenty of things to alight on.
These include production problems with the Tesla Model 3 and the company's continued burning through its cash reserves.
Tesla is now down to its last $2bn and there has been speculation, denied by Mr Musk, that it needs to raise capital.
So Mr Musk will have taken great pleasure in watching the stock price rally on his tweets last night - it rose by 11% on the session - as it will have burned those betting against it.
The biggest question of all, though, is whether Mr Musk indeed has the funding to take Tesla private.
At $420 a share, the company would be valued at $72bn (£56bn), a vast sum of money. It would dwarf any previous management buy-out ever previously attempted.
To put it in context, computer entrepreneur Michael Dell's takeover of his eponymous company in 2013, with which Mr Musk has been happy to see this proposed deal compared, came in at just under $25bn.
Yet it is perfectly possible that Mr Musk is good for the money.
Quite apart from the Saudis, other deep-pocketed backers could include Softbank, the Japanese tech investor that snaffled Britain's Arm Holdings two years ago for £25bn and Fidelity, the giant US fund manager that has previously supported SpaceX, another of his ventures.
Nor would the total cost be $72bn; Mr Musk and other company insiders own around 25% of the business, while a further 12% is owned by individual investors, many of whom have indicated they wish to remain shareholders and would simply roll their stake into any new ownership vehicle off-market.
His bigger problem may be with the institutional investors that own the remaining 62% or so of Tesla.
The mooted price tag of $420-a-share is barely 10% above Tesla's all-time high and so many institutions may not regard it as a sufficiently generous takeover premium.
Lastly, there is the question of whether taking Tesla private would be a good idea.
There is no doubt Mr Musk has found aspects of life running a quoted company tiresome, not least, dealing with investors and analysts.
The latter, for their part, have found Tesla an at-times frustrating company to invest in or analyse. Allowing it to grow at its own pace in private, beyond the gaze of the public markets, makes a lot of sense.