Wall Street and Washington have the same question for Elon Musk: where’s the money?
Two days after he vowed on Twitter that he had “funding secured” for a spectacular US$82-billion deal to take Tesla private, he has offered no evidence to back up the statement. No one has stepped forward publicly — or privately — to say they’re behind the plan. People with or close to 15 financial institutions and technology firms who spoke on the condition of anonymity said they weren’t aware of financing having been locked in before Musk’s tweet.
All of which could be problematic as the Securities and Exchange Commission starts investigating the matter. Regulators have asked the company if what Musk tweeted was factual and why such a disclosure was made via social media rather than in a filing, according to the Wall Street Journal, citing unidentified people familiar with the matter. Judith Burns, an SEC spokeswoman, declined to comment. Tesla also declined to comment.
“When Musk tweeted this, was he saying this was something that was definitely going to happen? Something that might happen?” said Ira Matetsky, a partner at Ganfer & Shore in New York, outlining questions the SEC might ask. “How would a reasonable investor interpret that and was it consistent with the facts as they existed at the time?”
Tesla closed down 2.4% at $370.34 on Wednesday in New York — well below the $420 at which Musk said shareholders would be bought out.
The CEO raised the go-private possibility with the board last week, according to a statement from six of Tesla’s nine directors. They said he had “addressed the funding for this to occur”, without providing details.
As for Tesla shareholders, Musk said in one of his Twitter posts that “investor support is confirmed” for his plan. The largest shareholders declined to comment. At the California State Teachers’ Retirement System, which as of March owned about 213 000 shares, spokeswoman Michelle Mussuto said there was no advance warning.
“We have not been contacted by Tesla IR,” she said. “They didn’t reach out before the tweet either.”
Leaving the public marketplace isn’t a new vision for Musk, who told Rolling Stone in an interview published in November: “I wish we could be private with Tesla. It actually makes us less efficient to be a public company.”
In April 2017, when Musk held talks with Masayoshi Son about SoftBank Group investing in the electric car maker, they 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 and have not started up again.
Musk’s personal stake in Tesla is almost 20%, meaning he would need roughly $70-billion to take it out of the market. That kind of money may be accessible through sovereign wealth funds or other strategic investors, said Dwight Scott, president of Blackstone Group’s GSO Capital Partners. The money-losing and cash-burning company is an unlikely candidate for debt investors to be willing to help go private.
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, said Toni Sacconaghi, an analyst at Bernstein who has long been bearish on Tesla shares.
But “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.”
It’s also possible Musk has some unconventional plan that would take Tesla private without using traditional sources. On Twitter, he alluded to the creation of a “special purpose fund enabling anyone to stay with Tesla”, though he didn’t elaborate on how it would work.
“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.” — Reported by Dana Hull, with assistance from Alix Steel, David Westin, Sarah Gardner, Caroline Hyde, Vonnie Quinn, Sophie Caronello, Ben Bain and Matt Robinson, (c) 2018 Bloomberg LP