Elon Musk took to Twitter on Tuesday to declare that he wanted to take Tesla private in a deal that would value the company at $70bn, potentially bringing an end to his fractious relationship with Wall Street.
Mr Musk announced his plans in a Twitter post shortly after a Financial Times report that Saudi Arabia’s sovereign wealth fund had taken a $2bn stake in the electric carmaker.
Mr Musk’s unorthodox use of social media to divulge the plans left investors guessing about how seriously to take the claims by the mercurial entrepreneur. The Tesla boss dropped his bombshell on Wall Street at lunchtime in New York.
“Am considering taking Tesla private at $420. Funding secured,” Mr Musk wrote on Twitter. The company’s shares jumped on the news and, after a short trading halt, ended the day up 11 per cent at $379.57.
In an email to employees released by the company, Mr Musk argued that being private would create “the environment for Tesla to operate best”, freed from “wild swings in our stock price that can be a major distraction for everyone working at Tesla”.
He also said the company would be freed from “quarterly earnings cycles” that put it under pressure to hit short-term targets, and that being public gave short sellers a chance to attack the company, turning it into “the most shorted stock in the history of the stock market”.
While laying out the reasons for wanting to turn his back on Wall Street, however, the Tesla boss gave no further details on how he would fund a deal or when he hoped to make the buyout offer.
Mr Musk’s first tweet came less than an hour after the FT disclosed that Saudi Arabia’s Public Investment Fund had amassed a stake of 3-5 per cent this year, putting it among Tesla’s largest investors.
Before Tuesday’s jump in Tesla’s share price, the Saudi position was worth $1.7bn-$2.9bn. The stake, which is below the 5 per cent threshold that requires public disclosure, makes the PIF one of Tesla’s eight biggest shareholders, according to Bloomberg data. Mr Musk has a 19.9 per cent stake.
Mr Musk’s recent history of using Twitter to troll his critics initially left many observers questioning whether he was serious about the buyout idea. Adding to the suspicion was the mooted $420 price for Tesla’s shares, which was seen as a possible reference to 4/20, with April 20 a day celebrated by marijuana smokers.
US companies are seldom obliged to respond to press reports, but if they decide to make a statement it has to be truthful otherwise it can be considered stock manipulation.
A top Wall Street lawyer said that “there is no way Musk can put out a false statement on Twitter and not get in trouble. That is a plain and simple violation of existing securities rules.”
If found to have put out a misleading statement, Mr Musk would be in violation of Rule 10b-5 under the Securities Exchange Act of 1934. The Securities and Exchange Commission declined to comment.
The PIF, which has more than $250bn in assets, initially approached Tesla and Mr Musk to express interest in purchasing newly issued shares in the company.
However, Tesla did not act on the interest, one person informed on the matter said. Instead, the Saudi state fund acquired the position in secondary markets with the help of JPMorgan. Mr Musk and Tesla are aware of the PIF shareholding, this person said.
Mr Musk has resisted selling new shares this year, even though rating agency Moody’s and many Wall Street analysts have argued he should build a bigger financial cushion.
Tesla burnt through $1.8bn in the first half of the year, leaving it with cash reserves of $2.2bn at the end of June. Mr Musk maintains that the electric carmaker will be cash flow positive in the final two quarters of this year.
Saudi Arabia’s investment appeared to confirm Mr Musk’s claim last week that “we certainly could raise money”. However, the Tesla boss also said it would be “better discipline” not to sell more shares. He is trying to prove to Wall Street that Tesla finally, after 15 years, has a financially sustainable business.
Tesla’s stock is a battleground for short-sellers and those who believe in Mr Musk’s vision for the company. According to Markit data, 27 per cent of the company’s free float is out on loan to investors betting that its share price will decline, making it one of the most heavily shorted companies on the US market.
If the company was taken private at $420, based on the current level of outstanding short positions, Tesla bears would have suffered a loss of $4.4bn on their negative bets this year, according to S3 Partners. Tuesday’s share jump has inflicted a paper loss of $823m on short positions in the company.
Tesla’s bonds also rallied on the news, and the cost of insuring against the company defaulting on its bonds fell to the lowest level since trading in the credit-default swap contracts began earlier this summer.
Mr Musk has antagonised investors with Twitter stunts this year, including a joke on April 1 about Tesla filing for bankruptcy. That contributed to a growing rift with investors concerned by his running feud with critics on Wall Street — a situation Mr Musk appeared to want to repair last week, when he apologised on an earnings call about his earlier treatment of analysts.
At $420 a share, a Tesla buyout would value the company at $70bn, or 10 per cent above the peak share price it reached 14 months ago. Since then, problems with ramping up production of the company’s new Model 3 sedan and a cash outflow have provided extra ammunition for short sellers who have attacked the company’s stock, raising Mr Musk’s ire and leading to volatility in the shares.
Tesla and JPMorgan declined to comment on the Saudi stake. The PIF could not be reached for comment.
The PIF is driving the economic diversification efforts of Prince Mohammed, who is looking to wean his country’s economy off a reliance on income generated from oil. Its operations are managed by the crown prince’s trusted lieutenant Yasir al-Rumayyan.
In addition to the bet on Uber, the PIF has made several big-ticket investments, including a $45bn investment in the SoftBank Vision Fund and an up-to-$20bn commitment in an infrastructure fund managed by Blackstone. It also made a $400m investment in March in Florida-based Magic Leap, which makes “mixed reality” headsets.
The fund continues to look for other investment opportunities in companies linked to alternative energy. During his visit to the US Prince Mohammed and SoftBank founder Masayoshi Son unveiled an initiative to create the world’s largest solar power generation project in the kingdom, aiming to spend $200bn by 2030.
More recently, the 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.
Additional reporting by Simeon Kerr, Peter Campbell, Peter Wells and Robin Wigglesworth
Twitter storm: Musk unveils plan to go private
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