Elon Musk, CEO of Tesla Inc., has come under scrutiny this week after tweeting that he would take Tesla private at $420/share, and that he had funding secured. Now, Musk must face his critics, as well as his shareholders regarding this announcement.
The notion to take Tesla private stems from the fact that the company has faced loads of scrutiny after missing self-imposed deadlines to beef up production of the Model 3, and how these delays have greatly impacted Tesla’s already dwindling cash reserve. According to Musk, Saudi Arabia’s sovereign-wealth fund, which currently owns a 5% stake in the company, has consistently contacted him over the past 2 years in regards to allocating financial support to take the company private. Further, Musk met with the fund’s managing director on July 31st, which led Musk to believe that a deal with the fund could be closed, it was just a matter of beginning the process. Musk wrote, “This is why I referred to ‘funding secured’ in the August 7th announcement”. Furthermore, Musk believes that roughly two-thirds of his shareholders would remain with the company should he choose to take the company private. However, the deal is far from done and Musk’s recent announcement, which greatly lacked detail, caught the eyes of the Securities and Exchange Commission (SEC). The SEC plans to investigate Musk’s recent comments about taking Tesla private, as well as his ongoing relationship with Saudi Arabia’s sovereign-wealth fund. “The only way I could have meaningful discussions with our largest shareholders was to be completely forthcoming with them about my desire to take the company private,” said Musk. “However, it wouldn’t be right to share information about going private with just our largest investors without sharing the same information with all investors at the same time.” Going private at $420/share would render a valuation of more than $70 billion for Tesla. However, even Musk believes this amount “dramatically overstates the actual capital raise needed.”
While the structure of a “going-private” deal is still rather unclear for Tesla, Musk still has to find a way to overcome regulatory limits on shareholders in a privately held company before any serious talks may proceed.