Tesla board weighs Musk’s go-private gambit doubted by the market

Elon Musk, CEO of Tesla Inc. (Bloomberg pic)

SAN FRANCISCO: For the moment, Elon Musk is struggling to overcome his doubters.

One day after stunning Wall Street by tweeting that he might take Tesla Inc. private, six of the company’s directors confirmed that he indeed had raised the possibility with the board.

But the announcement did little to quiet the growing scepticism surrounding Musk’s proposal. Nor did news that emerged hours later that Musk had held preliminary, but unsuccessful, talks with SoftBank Group Corp. last year to potentially carry out the go-private plan. Tesla shares sank as much as 3.3% early Wednesday, cutting into the gains posted the day before.

Many questions remain unanswered, including the big one: how would Tesla come up with the money to pull off a deal valuing the unprofitable company at more than US$80 billion?

“How could Tesla possibly fund such a large transaction?” said Toni Sacconaghi, an analyst at Bernstein who’s long been bearish on Tesla shares. “If no firmer details emerge,” he wrote in a note to clients, “investors would likely increasingly debate Musk’s credibility and seemingly unhealthy focus on the shares’ price and volatility.”

Tesla shares closed down 2.4% to US$370.34 Wednesday in New York. That’s well below the US$420 price at which Musk said shareholders would be bought out.

“Last week, Elon opened a discussion with the board about taking the company private,” six directors on Tesla’s nine-member board said in a statement. “The board has met several times over the last week and is taking the appropriate next steps to evaluate this.”

The board lent credence to the idea that Musk’s tweets Tuesday were more than spur-of-the-moment whims from a notoriously impulsive billionaire. The chief executive officer has talked about it before; in a Rolling Stone interview published in November, he said “I wish we could be private with Tesla. It actually makes us less efficient to be a public company.”

And in April 2017, when he held talks with Masayoshi Son about SoftBank investing in Tesla, the two also touched on the possibility of fulfilling Musk’s wish, according to two people with knowledge of the discussions. The talks failed to progress due to disagreements over ownership.

Scepticism abounds that Musk has secured the means to take the electric-car maker private. He suggested he did in an initial post, but Tesla hasn’t disclosed any sources of financing, and no one has stepped forward publicly to say they’re backing the plan.

The board said only that Musk had “addressed the funding for this to occur.” No bank or investment fund contacted by Bloomberg News thus far has indicated it was aware of Musk’s plan to finance a Tesla buyout.

Names excluded from the board statement were Musk; his brother, Kimbal Musk; and Steve Jurvetson, a venture capitalist and early Tesla backer who’s been on leave since November.

LBO Unlikely
Musk owns an almost 20% stake in Tesla, meaning he’d still need roughly US$70 billion in financing to take Tesla private. That kind of money may be accessible through sovereign wealth funds or other strategic investors, said Dwight Scott, president of Blackstone Group LP’s GSO Capital Partners. Musk’s money-losing and cash-burning company is an unlikely candidate for debt investors to be willing to help go private.

“It’s very hard to put leverage on this company,” due to its negative cash flow and “operational issues,” Scott said Wednesday on Bloomberg Television.

It’s possible Musk could persuade some large institutional and strategic investors to either newly become or remain shareholders in the private company, which could reduce his funding needs, Sacconaghi said.

“What investors are waiting for is more details around what is meant when Elon Musk says funding is secured,” George Galliers, an analyst at Evercore ISI who rates Tesla the equivalent of a hold, said on Bloomberg Television. “They are raising a lot of sensible questions around who would be providing the funding and how exactly this might work.”