Tesla board evaluating Elon Musk's proposal to take company private

Ivan Schwartz
August 8, 2018

Shares rocketed up 11 percent after Musk's grand reveal Tuesday, with some expecting they would hit $420 - the price Musk had promised shareholders would receive once the company had finalized its go-private transformation. That would value the company at more than $70 billion.

It would have to buy back all of its public shares. But Musk provided scant details about his plan. He did not say how much money would be needed or from where it was going to come. Baron declined to comment to CNNMoney when asked specifically about Musk's proposal to take Tesla private.

Tesla stock opened at $369.09 on Wednesday, sliding almost 3 percent from its Tuesday closing price of $379.57.

Tesla may find it hard to line up banks and investors to lend it large sums.

"Am considering taking Tesla private at $420". Tesla does not. In the second quarter, it recorded another huge loss and burned through hundreds of millions of dollars in cash. If those shareholders vote against the proposal the company would not go private. Tesla does not fit that description, either, which could prove partly useful.

Tesla directors have said they knew about Elon Musk's surprise proposal to privatise the money-losing auto maker before he tweeted about it and have met several times in the past week to discuss the proposal.

In theory, Musk could pull off the transaction without taking on massive amounts of debt. The more that agree, the less debt needed. "Funding secured", the message from Musk, sent out nonchalantly on Tuesday afternoon, stated. The next four largest hold almost 30 per cent combined.

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Tesla has been publicly traded since 2010, and has seen its share price rise from just under $20 then to $360 at time of writing. If Mr Musk decides against going private, Mr Gordon said his credibility could take another hit, though one he could weather.

Days after Tesla opened up the Model 3 configurator to all potential buyers, not just reservation holders who got a place in line over a year ago, uncomfortable math lingers over the automaker's.

Musk would have a lot more freedom to invest even more in solar roofs, the Tesla Semi truck and any other new products without having to incur the wrath of investors and analysts who question the strategy. Many of those are incredibly bullish about the company.

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 USA each or remain investors in a private Tesla, out of the glare of Wall Street and its need for quarterly results.

"First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best".

Will going private solve Tesla's problems? "At risk, of course, is that anything short of a formal take-private offer could trigger lawsuits from burned short-sellers, or at worst, public pressure to remove Musk as CEO". "Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company". The move would also have little effect on Musk's current stake in the company, which rests at about 20 percent in current publicly traded form.

The company has $2.2 billion in cash and $9.5 billion in debt. Its stock market value now exceeds that of General Motors.

So that's led to confusion about how "private" Tesla would be if it kept some of its existing investors. They have even tolerated a board that has been criticized for its oversight. It very well may not be.

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