10: After all that, nobody has any idea what just
happened, and a word being increasingly thrown around is lawsuit.
As Yahoo's Rick
Newman writes, if the LBO deal described by Musk with
"funding secured" is true, it’s a boon for shareholders. But if
it’s not true, Tesla
is in trouble, and shareholders may feel the pain.
funding is secured, then it’s a factual statement,” says John C.
Coffee, director of the Center on Corporate Governance at
Columbia Law School. “But if he can’t prove that, he’s in some
danger of a big lawsuit because short sellers will be devastated
Aug. 7, Musk tweeted: “Am
considering taking Tesla private at $420. Funding secured.”
Those nine words sent the stock soaring from $342 to around
$370, an 8% jump. Then the Nasdaq exchange temporarily halted
trading in the shares, pending clarification of material news by
three hours after his momentous tweet, Musk posted a message to
employees explaining his rationale for going private. He cited
“wild swings” in the stock price and frequent attacks by short
sellers as “a major distraction for everyone working at Tesla.”
He cited Space X, the rocket-launching company where Musk
is also CEO, as an example of a privately owned company better
able to focus on a complex long-term mission. “A final decision
has not yet been made,” he said.
some further observations:
Musk’s aim was to temporarily boost Tesla’s stock in order to
force losses on short sellers, it could be considered stock
manipulation, which is illegal. “That’s
too inviting to a plaintiff’s lawyer not to sue,” says Coffee.
“This would be an attractive lawsuit. The people who think he’s
manipulating the market would say they’ve suffered an injury,
and you could pull all those losses together in a class action.”
on the other hand, Musk can demonstrate that he has actually
arranged financing for a private buyout, or made serious
efforts to do so, he might be off the hook.
will now be under pressure to promptly disclose whether a
buyout offer is serious and where the money would come from.
The company is worth about $62 billion (after the Musk-tweet
surge), and there would likely be a premium of 25% or more to
entice current holders to sell, and give up future gains. At
Musk’s price of $420 per share, the buyout would value the
company at around $71 billion
short: if this was indeed Musk's final "burning" of the shorts,
and an LBO is just a figment of his imaginations, it will be the
shorts who will have the last laugh.
9: After being halted for over an hour, TSLA
stock has reopened at $371 and has risen to $381, up 11.5%. The
record stock price is $385 on Sept 18, 2017.
bonds, however, which have a 101 Change of Control put, are far
less confident about the deal going through:
8: On its blog, Tesla has published the following
email that Elon Musk sent to employees
today, which appears to be merely another attack on Tesla shorts:
following email was sent to Tesla employees today:
today, I announced that I’m considering taking Tesla private at
a price of $420/share. I wanted to let you know my rationale for
this, and why I think this is the best path forward.
a final decision has not yet been made, but the reason for doing
this is all about creating the environment for Tesla to operate
best. 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. 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. 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.
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.
is especially true for a company like Tesla that has a
long-term, forward-looking mission. SpaceX is a perfect example:
it is far more operationally efficient, and that is largely due
to the fact that it is privately held. This is not to say that
it will make sense for Tesla to be private over the long-term.
In the future, once Tesla enters a phase of slower, more
predictable growth, it will likely make sense to return to the
what I envision being private would mean for all shareholders,
including all of our employees.
I would like to structure this so that all shareholders have a
they can stay investors in a private Tesla or they can be
bought out at $420 per share, which is a 20% premium over the
stock price following our Q2 earnings call (which
had already increased by 16%). My hope is for all shareholders
to remain, but if they prefer to be bought out, then this would
enable that to happen at a nice premium.
my intention is for all Tesla employees to remain shareholders
of the company, just as is the case at SpaceX. If
we were to go private, employees would still be able to
periodically sell their shares and exercise their options.
This would enable you to still share in the growing value of the
company that you have all worked so hard to build over time.
the intention is not to merge SpaceX and Tesla. They would
continue to have separate ownership and governance structures. However,
the structure envisioned for Tesla is similar in many ways to
the SpaceX structure: external shareholders and employee
shareholders have an opportunity to sell or buy approximately
every six months.
this has nothing to do with accumulating control for myself. I
own about 20% of the company now, and I don’t envision that
being substantially different after any deal is completed.
I’m trying to accomplish an outcome where Tesla can operate at
its best, free from as much distraction and short-term
thinking as possible, and where there is as little
change for all of our investors, including all of our employees,
proposal to go private would ultimately be finalized through a
vote of our shareholders. If
the process ends the way I expect it will, a private Tesla
would ultimately be an enormous opportunity for all of us.
Either way, the future is very bright and we’ll keep fighting to
achieve our mission.
once again, zero mention of the "committed" funding, where the
money for the LBO will come from, what the capital structure would
look like, or any analysis for that matter.
did decide to tweet again, however, and claim that "Investor
support is confirmed. Only reason why this is not certain is that
it’s contingent on a shareholder vote." It wasn't clear how
shareholders can vote for a deal without knowing who the investors
7: With Wall Street patiently waiting for
something resembling an 8-K which the company is scrambling to put
together based on Elon Musk's tweets now that the stock is halted
following the CEO's unexpected "LBO announcement" on twitter, Musk
continues to tweet only in response to questions, and while he has
ignored a question where the LBO funding will come from, when
asked if investors could "invest once private", Musk responded
"Yes, but liquidity events would be limited to every 6 months or
so (like SpaceX)."
then, in response to question if investors will be allowed to
co-invest, Musk said "no forced sales" and added that he hopes
"all shareholders remain. Will be way smoother & less
disruptive as a private company."
the punchline, which perhaps brought on the LBO tweetstorm to
begin with, Musk said that an LBO "Ends
negative propaganda from shorts." Of
course, it also eliminates the possibility to force a short
squeeze with a spurious narrative about taking a company with
a multi-billion cash burn private at a valuation of over $60
billion, which would make it bigger than TXU, and the largest
LBO in history.
speaking on CNBC, a Financial Times journalist made it clear that
"bankers close to Tesla have no knowledge of the buyout." Come to
think of it, until just two hours ago, Tesla didn't either.
6: The LBO by Tweet continues, with Musk now
saying that "Shareholders could either to sell at 420 or hold
shares & go private."
a subsequent, and the latest so far, tweet, Musk also added that
he is "super appreciative of Tesla shareholders. Will ensure their
prosperity in any scenario."
5: Tesla stock was finally halted at 2:08PM, well
over an hour after Musk first tweeted:
HALTED:(TSLA) Halt News Pending
4: Musk now reveals that he plans to use a "SPV"
for the going private transaction:
3: Bloomberg commentator Sebastian Boyd is not
buying it for a very simple reason: math (although meth would make
it more palatable):
Tesla has a free-float of 127.5 million shares. At $420 a share,
that would cost you $53.6 billion. The company already has net
debt of of $8.8 billion and an adjusted net leverage ratio of 13
it to be bought in a management-led LBO, a back-of-the
envelope calculation would give it a leverage ratio of over 90
times, worse on a trailing 12-month basis. You can't
run a company on math like that.
2: And just like that, the fluid situation has
just gone from bizarre to absolutely surreal, because in his very
next tweet, instead of providing additional details on what is a
major market moving annouincement Musk said...
in a follow up tweet, Musk appears to confirm the "deal":
another alleged confirmation comes from Ross Gerber of Gerber
bizarre odyssey continues, with Musk responding "Yes" to to a
question that an LBO "saves a lot of headaches":
now the stock has no idea what is going on:
Never one to miss an opportunity, Elon Musk has just tweeted -
from his verified account - that he is considering taking the
carmaker private at a price of $420, and even suggests he has the
a subsequent tweet, responding to Fox Business News' Liz Claman,
Musk confirms that he is apparently indeed serious.
stock prompt spiked even higher...
even though nobody has any idea what is going on: is it legal for
Musk to say what he did without halting the stock first? Is he
simply baked and inviting countless law suits? Who is providing
the massive debt to a company with billions in negative cash flow?
At what rate? Can Musk even do this when he is a top shareholders
(and stands to reap huge gains) and his announcement creates a
massive conflict of interest? If this is even close to true,
TSLA bonds (those without a change of control clause) should be
maybe this is just another attempt by Musk to create a short
squeeze and "crush the shorts."
if he is really about to MBO - CDS buyers will be loving it...
we just find the latest greater fool?
FT reports that Saudi
Arabia’s sovereign wealth fund has built a significant stake in
Tesla - the latest bold bet by the
state fund overseen by powerful crown prince Mohammed bin Salman.
Public Investment Fund (PIF) built the undisclosed
stake of between 3 and 5 per cent of the electric vehicle
maker’s shares this year, according to people with
direct knowledge of the matter.
FT reports that PIF
initially approached Musk about purchasing newly issued shares
but Musk reportedly rebuffed the offer -
perhaps anxious of the perception of further dilution and the
promises he made of the need for more capital.
however, that Tesla
gets $0 from this secondary market investment -
at a time when the carmaker is losing a record amount of money.
shares are jumping on the news...
TSLA bonds are up but remain considerable "cheaper" than stocks...
Saudi state fund reportedly acquired
the position in secondary markets with the
help of JPMorgan - which is odd since JPMorgan
has an 'underweight' on TSLA with a profit target of $195 (a
great way to get the stock lower for their wealthy gulf clients).
all this coming just weeks after Aramco suddenly decides to
raise billions in debt instead of IPOing?
PIF has been in talks with global banks to borrow between $6bn
and $8bn, marking the first time that the
vehicle entrusted with driving the kingdom’s economic
transformation will directly tap banks to fund its mission.
skeptic might wonder whether, since Tesla can’t buyback stock
directly using debt-issuance (WACC too high), it is using US bond
investors as a source of funds and Saudis as the proxy buyer to
achieve the same effect.