Business Insider Edition

Elon Musk reveals new details about taking Tesla private

Mark Matousek , Business Insider US
 Aug 13, 2018, 06:23 PM

On Monday, Tesla CEO Elon Musk explained his market-moving tweet from last week.

  • Tesla CEO Elon Musk has explained why he used the phrase "funding secured" in a market-moving tweet he sent Tuesday suggesting he wanted to take Tesla private.
  • In a blog post on Tesla's website posted on Monday, Musk said he used the phrase "funding secured" because he believed there was "no question" Saudi Arabia's Public Investment Fund would provide funding for a deal to convert Tesla into a private company after a July 31 meeting with the fund's managing director.
  • Musk said he was in discussions with the Saudi sovereign wealth fund and other investors and planned to fund most of a potential take-private deal with equity rather than debt, since he does not want to increase Tesla's debt load.
  • Musk also estimated that about two-thirds of the shares owned by Tesla shareholders would roll over into shares of a private Tesla, were a deal to go through.

Tesla CEO Elon Musk on Monday revealed why he used the phrase "funding secured" in his market-moving tweet last week in which he suggested he wanted to take Tesla private.

In the tweet, sent Tuesday, Musk said he was considering taking Tesla private for $420 a share and implied that he had the funding in place to do so, pending a shareholder vote.

In a blog post on Tesla's website posted on Monday, Musk said he used the phrase "funding secured" because he believed there was "no question" Saudi Arabia's Public Investment Fund would provide funding for a deal to convert Tesla into a private company after a July 31 meeting with the fund's managing director. He made the announcement via Twitter, he said, because he wanted all Tesla investors to know about the possibility of Tesla going private at the same time.

"As mentioned earlier, I made the announcement last Tuesday because I felt it was the right and fair thing to do so that all investors had the same information at the same time," Musk said in the statement. "I will now continue to talk with investors, and I have engaged advisers to investigate a range of potential structures and options. Among other things, this will allow me to obtain a more precise understanding of how many of Tesla's existing public shareholders would remain shareholders if we became private."

Musk said he was in discussions with the Saudi sovereign wealth fund and other investors and planned to fund most of a potential take-private deal with equity rather than debt, since he does not want to increase Tesla's debt load.

Musk also estimated that about two-thirds of the shares owned by Tesla shareholders would roll over into shares of a private Tesla, were a deal to go through. In that case, he would not have to raise the over $70 billion (more than R1 trillion) that would be needed to buy out all current shareholders at $420 a share.

"Reports that more than $70B would be needed to take Tesla private dramatically overstate the actual capital raise needed," he said.

Musk said all relevant parties would be able to review a proposal before a decision was made about going private. He said a proposal would not be presented, however, until discussions with potential investors were finished.

The Saudi sovereign wealth fund first met with Musk early last year about taking Tesla private, Musk said, adding that they'd met multiple times. After the fund purchased about 5% of Tesla's shares, it requested another meeting with Musk, which Musk said took place July 31. Musk said that during this meeting the fund's managing director "strongly expressed his support" to contribute funding to take Tesla private.

Musk notified Tesla's board of directors of his desire to take Tesla private on August 2, he said. Then on Tuesday he shocked observers by making that desire public.

"Am considering taking Tesla private at $420. Funding secured," Musk said via Twitter before issuing a formal statement on Tesla's website.

In that statement, Musk said taking the company private was "the best path forward." He said the pressures of being a public company created distractions and promoted short-term thinking that may not produce the best decisions in the long term.

"I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we're all trying to achieve," he said.

Tesla's share price surged after Musk's initial tweet, rising by as much as 12%, to over $381, before trading closed.

Some were confused in the hours and days following the tweet, since Musk did not initially disclose who might provide the funding he mentioned.

The Wall Street Journal reported on Wednesday that the US Securities and Exchange Commission had made an inquiry into Tesla about whether one of Musk's tweets regarding the possibility of taking the company private was truthful. And on Thursday, Bloomberg reported that the agency was "intensifying" its inquiry.

Tesla's board released a statement on Wednesday morning that was very brief and offered few details other than news that Musk had met with the board last week to bring up the possibility of going private.

Tesla has been public since 2010, but Musk has previously said he would like to take Tesla private.

"I wish we could be private with Tesla," Musk said in an interview with Rolling Stone published in November. "It actually makes us less efficient to be a public company."

Musk has also said on multiple occasions that Tesla would become profitable by the end of this year and would not need to raise additional funds, despite its increased cash-burn rate in recent quarters.

At the end of June, Tesla said it achieved its goal of making 5,000 Model 3s in one week. Musk previously said that the company would hit that number by the end of 2017 and that sustaining such a production rate was critical for Tesla to become profitable.

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