If you like your Tesla shares, you can keep your Tesla shares. Elon Musk said so himself on Tuesday, first on Twitter and later in a blog post. Minutes after the FT broke the news that PIF, Saudi Arabia’s sovereign wealth fund, had amassed a $2bn stake in the company via open market purchases, Mr Musk announced he was considering taking Tesla private. Existing shareholders may have the option to either sell their shares at $420 or keep their stake alongside Mr Musk’s.
There are plenty of legal and technical complexities if Mr Musk is serious (The Tesla board said on Tuesday Mr Musk had informed it of the proposal last week). But a buyout of the US electric car group is not totally preposterous. There will be plenty of shareholders who will want to take the money — $420 is a tenth above Tesla’s all-time high — and run. Tesla’s marginal profitability limits extra debt it could pile on to buy those investors out. But Mr Musk might get financing from the likes of private equity, sovereign wealth funds and pensions schemes.
At $420, Tesla’s market value would be $72bn. It has several convertible bonds so fully diluted equity value would be somewhat higher. Mr Musk owns 20 per cent, leaving, say, $58bn that could be acquired by the deep-pocketed.
Those are just the kind of investors Tesla needs. Large but unproven disrupters such as Uber have elected to stay private and have taken advantage of an increasingly sophisticated private capital market to which Mr Musk is apparently now willing to entrust his company. Such investors would not be scrutinising week-to-week production. They would want to see steady progress towards wide demand for Tesla cars and real profitability.
Mr Musk explained that being private could help Tesla avoid the short-term orientation that he believes plagues public markets. This has been a particular sore point for Mr Musk, who has clashed repeatedly with Wall Street analysts and short sellers. These have focused on Tesla’s difficulties in hitting output forecasts. More than a quarter of Tesla shares are currently sold short.
Still, Mr Musk seems to relish the jousting with public shareholders. Big private investors are smart and demanding in a more substantive way. They are the type who eventually sacked the founder of Uber, Travis Kalanick, when his antics became too much to tolerate and they could find a better operator. Mr Musk should be wary that scrutiny will be any less taxing.
Copyright The Financial Times Limited 2018. All rights reserved.
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