Overconfident, or just delusional?
Tesla’s commander-in-chief Elon Musk is gaining quite the reputation for jumping the gun and generally acting very un-CEO-like. Recently he called a volunteer diver in the Thai cave rescue saga a “pedo guy” after said diver was critical of Musk’s efforts, and now the spotlight is shining on his recent claims (on Twitter of course) that he had “funding secured” to privatise Tesla.
Any move that involves about US$70-billion would come under intense scrutiny, let alone when it involves one of the most hype-powered, brand-focused companies in the auto industry. But it draws even more attention when, after an intense 30-seconds of pondering, you realise it doesn’t actually work.
Musk says that he had been in discussion with some Saudi investors representing the country’s sovereign wealth fund, the Public Investment Fund, and they’d “expressed support for funding a going private transaction for Tesla at this time.” He then went on that he “understood” that “no other decision makers were needed” and that from this discussion, the fund was “eager to proceed.”
But the Business Insider pulled apart Musk’s claims to see if they held water. First, a traditional leveraged buyout of Tesla would demand some US$66-billion in cash to privatise, something that the Saudi fund simply doesn’t have. Further, the ‘eagerness’ of the fund to proceed was then diluted when, after reengaging with the Saudis on the 7th of August, Musk discovered that more than one person’s ‘eagerness’ would be needed to finance such a mammoth deal.
So it’s clear that the Saudi fund alone cannot pay for Tesla’s privatisation. But Musk’s addressed that by saying that he is “having discussions with a number of other investors,” as it’s his intention for Tesla to enjoy a “broad investor base.” But he also took issue with the amount of cash needed to privatise the company, it seems.
“Reports that more than US$70-billion would be needed to take Tesla private dramatically overstate the actual capital raise needed. The $420 buyout price would only be used for Tesla shareholders who do not remain with our company if it is private. My best estimate right now is that approximately two-thirds of shares owned by all current investors would roll over into a private Tesla.” — Elon Musk, CEO, Tesla Inc.
The BI report noted that it was unfounded for Musk to assume that 2/3rds of public stakeholders would “roll over” into private stakeholders. For starters, they noted that “some investors may not be able to hold a private company at all.” Further, Musk’s intention avoid public reporting (which he says has resulted in Tesla being the most scrutinised stock in history) would be derailed because with over 2,000 investors, he’d still be subject to reporting requirements.
But if we were to go back to Musk’s claims that the Saudi fund was “eager to proceed,” there could be some serious ramifications for the outspoken entrepreneur. Musk is clearly not an idiot (despite some of his actions that would suggest otherwise), so assuming that Tesla’s big investors had enough money lying around to privatise the firm seems unlikely. And if he knew that there wasn’t “funding secured” as he claimed, the United States Securities & Exchange Commission could go after him for stock manipulation. Following Musk’s tweet, Tesla’s stock rose about 12% in value, though prices have died down following the clarification.
Regardless of what lies ahead, be it lawsuits or deliverance, be sure to stay tuned to CarShowroom as we bring you more updates as they come.
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