Tesla said Wednesday its board is evaluating CEO Elon Musk’s idea to take the firm private
Members of Tesla’s board of directors say they’ve met ‘several times’ since last week to discuss CEO Elon Musk’s proposal to take Tesla private.
The billionaire tech mogul tweeted Tuesday that he was ‘considering taking Tesla private’ and that he had secured the necessary funding to do so, providing no further details beyond that.
He proposed taking the loss-making electric car-maker private at a price of $420 per share, which caused Tesla’s stock to climb to roughly $375 a share on Tuesday. Shares have since come down, with the stock opening more than 1 percent lower on Wednesday morning.
The tweets have raised concerns about whether Musk violated fair-disclosure rules established by the Securities and Exchange Commission around using social media platforms for market manipulation. Investors are also skeptical about how Tesla will fund the take-private transaction.
Musk’s message came after a report said Saudi Arabia’s sovereign wealth fund had bought a $2 billion – or nearly 5 percent – stake in Tesla.
Should Musk ultimately decide to take Tesla private at a price of $420 per share, or more than $70 billion, it would mark the largest buyout in history.
Shares of Tesla shot up more than 11 percent to $379.57 on Tuesday after Musk’s initial announcement, but have since fallen 1.3 percent to $374.60 on Wednesday morning.
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Shares of Tesla shot up more than 11 percent to $379.57 on Tuesday after Musk’s initial announcement, but have since fallen 1.3 percent to $374.60 on Wednesday morning
In a statement on Tesla’s website on Wednesday, six of Tesla’s nine directors said the board had met several times over the last week to discuss the idea and was ‘taking the appropriate next steps to evaluate this.’
They said the board also addressed the issue of how to fund such a deal, but gave no details.
‘Last week Elon opened a discussion with the board about taking the company private,’ Tesla’s board said in statement issued Wednesday.
‘This included discussion as to how being private could better serve Tesla’s long-term interests, and also addressed the funding for this to occur.
‘The board has met several times over the last week and is now taking the appropriate next steps to evaluate this,’ they added.
The statement from Tesla’s board of directors comes as:
- Elon Musk took shareholders and Wall Street by surprise Tuesday after he posted a series of tweets saying he was weighing taking Tesla private at $420 per share
- Musk said he’d already secured funding, but many remain skeptical about how the firm will find the money for what would mark the largest buyout in history
- Regardless, the news sent shares of Tesla skyrocketing 11 percent on Tuesday, prompting a suspension of trading. By Wednesday, the stock fell 1 percent
- The tweets have raised concerns about the need for an investigation by the SEC, which has so far declined to comment on whether it would launch a probe
Tesla hasn’t disclosed any details about funding beyond noting that the firm had secured the necessary means for a take-private transaction.
So far, no one has stepped forward to say they’re backing the buyout.
In a letter to shareholders after his tweet on Tuesday, Musk fleshed out his idea, suggesting they would get the option to sell their shares for $420 each or remain investors in a private Tesla, out of the glare of Wall Street and its need for quarterly results.
He said that would allow Tesla to ‘operate at its best, free from as much distraction and short-term thinking as possible.’
It’s highly unusual for the head of a major company make a significant announcement in such casual manner.
The tweet prompted questions about how serious Musk’s intentions were.
Some questioned whether Musk violated rules from the Securities and Exchange Commission.
However, there are provisions in SEC rules that allow for certain material announcements to be made on social media platforms.
So far, the SEC has declined to comment on the matter, but experts say it could be fuel for a potential investigation later on down the line.
‘If his comments were issued for the purpose of moving the price of the stock, that could be manipulation, it could also be securities fraud,’ former SEC Chairman Harvey Pitt told CNBC.
‘The use of a specific price for a potential going private transaction is highly unprecedented and therefore raises significant questions about what his intent was. So, that would have to be investigated.’
However, several Wall Street analysts expressed skepticism about Musk’s ability to gather the financial backing to complete such a deal.
‘Who gives $30 to $50 billion to buy back the shares?,’ asked NordLB analyst Frank Schwope.
‘And if you stay as a shareholder you get less information than before and you depend more and more on Elon Musk.’
READ THE FULL STATEMENT FROM TESLA’S BOARD ON TAKING THE FIRM PRIVATE
‘Last week, Elon opened a discussion with the board about taking the company private.
This included discussion as to how being private could better serve Tesla’s long-term interests, and also addressed the funding for this to occur.
The board has met several times over the last week and is taking the appropriate next steps to evaluate this.’
– Signed by Tesla board members Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice, and James Murdoch
Many cited Tesla’s massive debt load as a sticking point in its plans to go private.
‘The company is cash-flow negative,’ Steven Kaplan, a University of Chicago professor, told BBC.
‘How do you use any debt on a company that is cash-flow negative?’
JPMorgan analyst Ryan Brinkman said he gave only a 50 percent probability that Tesla would go private.
The six board members who issued the statement on Wednesday included James Murdoch, chief executive of Twenty-First Century Fox Inc and Brad Buss, who was the chief financial officer of solar panel maker SolarCity until it was bought by Tesla in 2016.
Other board members mentioned in the statement included Robyn Denholm, Ira Ehrenpreis, Antonio Gracias and Linda Johnson Rice.
Tesla’s other board members are Musk, his brother Kimbal Musk and venture capitalist Steve Jurvetson.
WHY DOES ELON MUSK WANT TO TAKE TESLA PRIVATE?
In a shock announcement on Tuesday, Tesla CEO Elon Musk announced that he has weighed taking the electric car company private at $420 a share.
A take-private price of $420 a share would value Tesla at $82 billion and marks a significant jump from the stock’s current levels of roughly $379 a share.
Going private involves a transaction(s) that take a company off the public market, meaning retail investors can no longer trade shares on the stock market.
Take-private transactions may be led by a non-controlling shareholder, a private equity firm making a leveraged buyout or a consortium of companies.
Musk said he has received broad investor support for the move. The only thing standing in the way of an official announcement is a shareholder vote.
Going private would allow Tesla to avoid many of the pressures of the public markets, such as wild stock swings, scrutiny from Wall Street analysts, as well as ‘attacks’ from short-sellers – a group that Musk has said ‘want [Tesla] to die so bad they can taste it.’
In a letter to employees, Musk said Tesla’s volatile stock has served as a ‘major distraction’ to staff and that being public created a lot of pressure on the company to ‘make decisions that may be right for a given quarter, but not necessarily right for the long-term.’
If Tesla goes private, it would no longer be forced to file public financial statements or host quarterly earnings calls with Wall Street analysts.
These events tend to cause upward or downward swings in Tesla’s stock.