By on August 8, 2018

Six members of the Tesla board of directors issued a statement Wednesday, claiming CEO Elon Musk spoke to them last week about his plan to take the publicly traded company private. Musk shocked investors and analysts Tuesday after he tweeted his vision of the automaker’s corporate future, claiming funding existed to pull it off. He later shared an internal email to employees on the company’s blog.

Though Musk’s blog post doesn’t mention how he’d bankroll such a massive buyout, the company’s board says he discussed the funding issue with them.

The statement from board members Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice, and James Murdoch was brief:

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.

Musk envisions taking the company private at $420 a share, which means a deal of roughly $72 billion. While he cautioned that a final decision has not been made (the board would obviously like a say), the CEO did claim via Twitter that funding was secured, raising the obvious question: who’s going to put up the dough to buy back all those shares?

CNBC contacted several Wall Street banks, all of which hadn’t heard a peep about Musk’s plan. Reuters, noting that Musk’s plan, if it comes to pass, would be the largest leveraged buyout of all time, speculated on which equity partners could handle such a deal. One possibility is Saudi Arabia’s Public Investment Fund, which recently bought a stake of close to 5 percent. Another is China’s Tencent Holdings Ltd, which also owns a 5 percent stake in the automaker.

Still, Musk wrote that he’d prefer as many shareholders as possible retain their stake, which would make the buyout a cheaper proposition.

The plan isn’t sitting well with many. Speaking to Reuters, NordLB analyst Frank Schwope said, “Who gives $30 to $50 billion to buy back the shares? And if you stay as a shareholder you get less information than before and you depend more and more on Elon Musk.”

In a note, Barclay’s wrote, “This is out there, even for Tesla. Buyout would require about $70 billion: roughly $60 billion for equity and about $10 billion to take out debt. With 145 million shares, a buyout at $420/share would require $60 billion to take out all public shareholders.

Morgan Stanley wrote that it sympathized with Musk’s reasoning, adding that the desire to take Tesla private indicates either an imminent return to profitability or the discovery of a previously absent source of capital. However, it asked, “If Tesla’s CEO really wanted to go private… why announce it to the world in this way… which could significantly contribute to the required premium and financial leverage?

The company isn’t profitable, it still faces a mountain of production challenges, and its CEO is well known for his controversial remarks and decisions. Still, the benefits for a company (and CEO) that likes to keep things close to the vest are clear. Musk laid this out in Tuesday’s blog post.

Many analysts and observers spent Tuesday pointing out that, by tweeting out this bombshell, Musk has a very limited time in which to inform the U.S. Securities and Exchange Commission of his intentions — or risk running afoul of the law.

[Image: Elon Musk/Twitter]

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19 Comments on “Tesla Board Members Pipe Up on Musk’s Going-private Plan...”


  • avatar
    SCE to AUX

    “…claiming CEO Elon Musk spoke to them last week”

    Do we suspect that six board members are lying about this? Or maybe they just ‘said’ he spoke to them last week.

    I guess everything Tesla-related is a suspect claim – not a statement – and certainly never a fact.

    • 0 avatar
      Malforus

      This feels like very very poor damage control at this point. Elon should not have put that out there the way he did.

      That so far the deal isn’t locked down and provable will just call his decision making on the business side more into question.

      There is a huge difference between “having conversations” with your board and announcing publically that you “might” take the company private….

      Its reckless and invites regulatory oversight that can bog down the process.

  • avatar
    Sub-600

    What a dumpster fire.

  • avatar
    Acd

    Tesla can’t make money with their current level of debt. How is taking on $70 billion more in debt going to help their situation?

    • 0 avatar
      b534202

      That’s the mystery buyer’s problem. Elon just wants to cash out and live on Mars.

      • 0 avatar
        TwoBelugas

        I look forward to the insight big3beancounter can bring, in addition to his standard accusation of people spreading lies about their losses.

        • 0 avatar
          TwoBelugas

          “…and not obsess over quarterly figures”

          “I have no particular expertise on corporate structuring.”

          that much checks out.

        • 0 avatar
          MrIcky

          From the comments heard from major investors of TESLA, I’m not sure that you can say what the investors want. I think Elon wants to make a product that gives him financing for space projects. That seems to be where his heart is. He really only reengaged when it looked like he was going to have real issues with the product and therefore no money for Mars. Half the time I hear Elon speak, he makes it sound like the actual running of a car company is a drudgery.

          The major investors seem to think they’re in on the ground floor of the next Apple. They don’t seem to know much or care about running a car company- let alone being the most dominant EV company in the world. I also think that they are getting more professional big investors who are pushing TESLA to start worrying about those quarterly figures.

          The last half dozen real news reports on TESLA (not the ones about Elon’s twittering) were about how does TESLA increase production to make quarterly goals on the 3, then transitioning into TESLA finally making a quarterly goal on the 3.

          The losses are more because spread focus, overpromising, and poor development planning models for cars- they keep releasing betas then fixing them in production.

          The 3 seems to be coming along and maybe we’ll see the company ‘grow up’ with this model.

  • avatar
    DeadWeight

    A private Tesla necessarily assumes a company that is leveraged 80x-90x via a management-led leveraged buyout, and even that may be a conservatively low leverage ratio depending on the true and accurate Tesla financial sheet as can only be revealed by an accurate GAAP measure.

    Elon gets a share price bump with some tweets based on total insanity that few bother to actually apply fundamental math to determine even basic fundamentals thereof.

    “Bloomberg commentator Sebastian Boyd is not buying it for a very simple reason: math (although meth would make it more palatable):

    Some Tesla Math

    Incidentally, Tesla has a free-float of 127.5 million shares. At $420 a share, that would cost you $53.6 billion. The company already has net debt of of $8.8 billion and an adjusted net leverage ratio of 13 times. Were it to be bought in a management-led LBO, a back-of-the envelope calculation would give it a leverage ratio of over 90 times, worse on a trailing 12-month basis. You can’t run a company on math like that.”

    This is the world that we are living in.

    It’s literally all a House of Cards, Total Bullish*t, and Mass Delusion.

    It’s the very definition of insanity.

    Drink the Soma, bathe in the snake oil, and pretend that anything is possible, and even probable, in the direct face of contrary facts and math.

    I knew the world had gone batsh*t crazy in 2007, just prior to the “Troubles” that followed.

    The world is set up for “Troubles” that will make those of 2008-2012 look less dramatic, now.

    • 0 avatar
      Lockstops

      BigJoke: what DW writes is true, as opposed to your BS about Tesla outselling anyone.

      According to BigJoke Tschernobyl was the most amazing and powerful powerplant ever since at one point it suddenly released massive amounts of energy, much more than any other power plant. It’s also the most significant as it impacted most lives across the globe than any power plant had ever done before!

  • avatar
    stingray65

    Big 3 – so a Model 3 is better than an M3 in every meaningful way? Is the vastly superior fit and finish of the BMW meaningful? How about a track day where a Tesla is incapable of a full lap or more than two acceleration runs without the battery overheating (see links). And of course the hours of battery recharging will certainly lengthen pit stops versus a few minutes to refuel the M3 whether on a race course or a cross-country drive, but I guess those BMW advantages aren’t meaningful. I suppose it also isn’t meaningful that in 2 to 5 years when Tesla corporation is nothing but a memory, BMW M3 owners will still be able to get parts and service.

    http://www.thedrive.com/news/5207/this-video-reminds-us-that-the-tesla-model-s-is-an-awful-track-car

    https://www.fool.com/investing/2016/08/25/is-this-one-reason-why-tesla-motors-created-ludicr.aspx

    • 0 avatar
      mcs

      stingray65: The Model 3 doesn’t have the same cooling issues as the Model S and has a track mode. You posted links to the Model S in order to mislead people. Here are links to an actual Model 3 Performance on the track review:

      https://www.roadandtrack.com/new-cars/road-tests/a22625274/tesla-model-3-performance-track-test/

      Here’s a story about a non-performance version of the Model 3 taking a Boxster in Time Attack:

      https://insideevs.com/tesla-model-3-beat-porsche-time-attack-race/

      “BMW M3 owners will still be able to get parts and service.”

      Yeah, I’ve owned M3’s and you’ll need to get parts and service. Lots of parts and lots of service.

      • 0 avatar
        Lockstops

        Cool story bro. So who beat what in what conditions? Are you serious?

        People can really be so pathetic.

      • 0 avatar
        stingray65

        MCS – thank you for pointing out a story published a whole 4 days ago, terrible that I would have missed such a nice PR article for Tesla. So they took 2 Model 3s to Lime Rock Park – a 1.5 mile handling circuit that I’m sure was purposely chosen by Tesla to minimize power draws on the Model 3 battery. Then they were only able to run 3 of these short laps before the car starting shutting down the power, which raised lap times by 3 seconds. And how convenient that it rained during the laps so they didn’t have to register times, but 3 seconds would be about 5% slower lap, which is a pretty significant reduction in performance. Total laps that can be run before exhausting a full battery is 30, and then you have to plug in for hours to drive more, and imagine the line at the recharging station during a track day with a few dozen Teslas quickly exhausting their batteries. Sure the numbers are impressive – they always are on a Tesla, but the other aspect that struck me is that the car is actually doing most of the driving, because the track mode turns all the driving aids to maximum (instead of minimum on most conventional cars), so the driver steers and pushes pedals, but the Model 3 soundlessly does the real work of keeping the car on the track – sounds sort of like a roller coaster and not a real test of driving skill. I don’t think the M cars or AMGs or RSs or GT350s, etc. have much to be worried about yet, but we can’t say for sure because they also conveniently did have any “competitors” along for the test.

        • 0 avatar
          mcs

          @stingray65: If you’d read the teardown articles on the TM3 batteries, you’d know that cooling has been improved over the TMS.

          Your claims about hours recharging on a cross-country trip are total BS. With supercharging (and the 3 may be capable of higher than the current supercharging rates) and the 3’s 300+ range, you’re not going to have much of a problem. After 3.5 to 4 hours on the road most normal people are going to make a stop.

          The M cars etc. do have something to worry about. For one thing, I can tell you from personal experience that M cars do heat up and you get degraded performance when that happens – at least the versions I had. You could really feel the difference on a hot day. There was also the TM3 victory over the Boxster in Time Attack. A real-world result.

          I wouldn’t buy a TM3 as a serious track car, although, let’s see what the third parties like Mountain Pass Engineering do for it. For a track car, you’d be better with something like a Taycan. Or, wait for the Tesla Roadster which should have even better cooling and 600-mile non-track range. That’ll give you decent time on the track and an opportunity to test the absorbancy limits of your adult diapers on the road.

  • avatar

    This sort of feels like the board covering up for Mr. M, who made a public announcement he should’t have – much like all his other public announcements.

    I might also add that this is yet more smoke and mirrors distractions from the issues at hand with Model 3 production. Or the submarine thing. Or any other number of major problems.

  • avatar
    ernest

    Given the huge short interest in Tesla at the moment ($10B and counting), this stock doesn’t react or trade in a “normal” pattern. Shocker, I know. I actually predict a historic short-interest loss here. Being right, and being able to stay liquid long enough to make that perception pay off are two entirely different things.

  • avatar
    stuki

    “But I do know that Tesla with just a single model outsells every car model offered by BMW in America. All of them. Combined. Crushed by the Model 3”

    Only if you restrict yourself to compare the initial sales burst of a car that has been preordered for years and years, to the simple business as usual sales of a more normal automaker. Per that method of counting, virtually every single current one-hit-wonder outsells the Beatles for the first heady few weeks his hit’s release, as well. IOW, it’s not an incorrect statement per se, but it isn’t necessarily all that relevant a metric either.

    OTOH, if you look at who has sold the most cars up until now, BMW or the Model 3; BMW still looks very much to be the Beatles in that comparison…..

  • avatar
    craiger

    You’re not supposed to make statements like that.

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