Tesla buyout would need to go short on leverage

Posted August 08, 2018

Fidelity, the investment firm, has such a fund for its stake in SpaceX, a separate private company also run by Musk.

Musk detailed his proposal in a blog post on the company's website Tuesday, hours after stunning the company's followers by casually tweeting that he might take it private.

But even for him, this was stunning. At $420 a share, Tesla would have a market cap of around $71 billion. It's not uncommon for trading in a stock to be halted in the wake of unexpected or unsettling news.

Shares quickly jumped as high as $371.

When asked on Twitter whether he was serious, Musk replied: "Yes.It saves a lot of headaches".

Tesla has been public since it filed an IPO in 2010. Trading in Tesla's stock resumed shortly after the letter's release, and the stock climbed 11 per cent to close at $US379.57.

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This seems to fit in with what experts are saying about the potential move, and with what Musk himself has said, historically.

Then he started taking questions - of which there were many.

Gene Munster, managing partner at Loup Ventures and a top tech analyst, said the odds that Musk will take Tesla private were about one in three.

Going private is one way to avoid the intense scrutiny of public markets. Much of that increase was driven by an earlier report that Saudi Arabia's sovereign wealth fund has bought $2 billion in Tesla stock, representing a 3-5% stake in the company.

He reassured investors that he planned to remain CEO. He said he was "super appreciative" of Tesla shareholders, and vowed to "ensure their prosperity in any scenario".

He has frequently lambasted "short" sellers of Tesla shares - those who take bets that the stock will fall in value.

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In an internal email, sent from Musk to Tesla employees on August 7, the CEO confirmed most of this, as he explained his thinking directly.

Tesla said in a regulatory filing in 2013 that investors interested in keeping up with Tesla should follow Musk's account.

Despite its challenges, Tesla has remained a favourite among many investors, partly due to their faith in Mr Musk, who made his initial fortune as a co- founder of PayPal and also is the chief executive of a trail-blazing aerospace company, SpaceX, that's already private. 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. And his tweet may have cost Tesla short sellers $1.3 billion, per CNBC.

Musk's tweet isn't a clear violation of SEC rules, but it could be if it was explicitly meant to boost Tesla's price. Musk has insisted Tesla has no such need.

"This has nothing to do with accumulating control for myself", Musk wrote. He said his own stake of about 20 percent would not be "substantially different" if the plan were to proceed.

The US Securities and Exchange Commission (SEC) allows companies to use social media outlets like Facebook and Twitter to announce key information in compliance with its fair disclosure rules so long as investors have been alerted about which social media outlets will be used to disseminate such information. "Only reason why this is not certain is that it's contingent on a shareholder vote", he said.

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