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Tesla CEO Drops Latest Bombshell With $72B Buyout Proposal

Musk has long raged against short sellers and mentioned his desire to be rid of them as one of his reasons for taking Tesla private

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Tesla CEO
Tesla CEO and founder of the Boring Company Elon Musk speaks at a news conference in Chicago, June 14, 2018. (VOA)
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Tesla CEO Elon Musk is considering leading a buyout of the electric car maker in a stunning move that would end the maverick company’s eight-year history trading on the stock market.

In his typically unorthodox fashion, the eccentric Musk dropped his bombshell on his Twitter account, which he has used as a platform for pranks, vitriol and now for a proposal to pull off one of the biggest buyouts in U.S. history.

Musk got the ball rolling Tuesday after the stock market had already been open more than three hours with a tweet announcing he might buy all of Tesla’s stock at $420 per share with no further details.

At that price, the buyout would cost nearly $72 billion, based on Tesla’s outstanding stock as of July 27, but it’s unlikely the deal would cost that much because Musk owns a roughly 20 percent stake in the Palo Alto, California, company. He also said he intends to give Tesla’s existing shareholders the option of retaining a stake in the company through a special fund, if they want.

“Am considering taking Tesla private at $420. Funding secured,” Musk wrote in his first tweet, following up with “good morning” and a smiley emoji.

His tweet came hours after the Financial Times reported that Saudi Arabia’s sovereign wealth fund had built a significant stake in Tesla Inc., but it was unclear if that was the funding Musk was referring to. The Financial Times, citing unnamed people with direct knowledge of the matter said Saudi Arabia’s Public Investment Fund had built a stake of between 3 and 5 percent of Telsa’s shares.

Musk’s announcement was initially met with widespread skepticism, with many people connecting the proposed $420-per-share offer with 420 being a common slang term for marijuana.

Musk also previously used his Twitter account to joke that Tesla was going bankrupt in an April Fool’s Day tweet and his stability was called into question last month after he called a British diver who helped rescue children from a Thailand cave a pedophile. That baseless tweet was quickly deleted and Musk apologized to the diver.

Elon Musk
Musk got the ball rolling Tuesday after the stock market had already been open more than three hours with a tweet announcing he might buy all of Tesla’s stock at $420 per share with no further details. (Wikimedia Commons)

The confusion caused by Musk’s Tuesday announcement via Twitter also prompted regulators of the Nasdaq stock market to temporarily suspend trading in Tesla’s stock.

Musk later brought some clarity to the situation in an email to Tesla employees that was also posted on Tesla’s blog. Trading in Tesla’s stock resumed shortly after, and the stock climbed 11 percent to $379.57. Musk’s offer is 9 percent higher than Tesla’s peak closing price of $385 reached nearly a year ago.

By taking Tesla private, Musk believes that the company will be able to sharpen its long-term focus of revolutionizing an automobile industry dominated by fuel-combustion vehicles without having to cater to investors’ fixation on how the business is faring from one quarter to the next.

Making money has proven elusive for Tesla while it has been investing in electric car technology and ramping up production of its vehicle, including a sedan with a starting price of $35,000 to appeal to a broader audience.

The company has only posted a quarterly profit twice in its history and has never made money during an entire calendar year, something that Musk has been trying to change by cutting costs, including recent mass layoffs that trimmed Tesla’s workforce by 9 percent. Tesla lost another $717.5 million in its most recent quarter.

Also Read: Why Elon Musk has Suddenly Gone Ballistic on Twitter

Despite its challenges, Tesla has remained a favorite among many investors, partly because of their faith in Musk, who made his initial fortune as a co-founder of PayPal and also is the CEO of a trail-blazing aerospace company, SpaceX, that’s already private.

But another substantial segment of investors are convinced Tesla is doomed to fail and are betting on the company’s eventual demise by becoming “short sellers” of its stock. Short sellers borrow shares from other investors and then immediately sell them on the premise that they will be able to buy them back at a lower price later to replace they stock they borrowed.

Musk has long raged against short sellers and mentioned his desire to be rid of them as one of his reasons for taking Tesla private. “Being public means that there are large numbers of people who have the incentive to attack the company,” he wrote. (VOA)

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Slow Disclosure of Tesla Raising Governance, Social Media Concerns

In his blog, Musk said he made the announcement on Twitter to ensure all investors were aware of his plan before speaking with the company's largest shareholders

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Tesla CEO
FILE - Elon Musk, CEO of Tesla Motors Inc., talks during a news conference at the company's headquarters in Fremont, California, Sept. 29, 2015. (VOA)

Tesla’s handling of Chief Executive Elon Musk’s proposal to take the carmaker private and its failure to promptly file a formal disclosure has raised governance concerns and sparked questions about how companies use social media.

Musk stunned investors last Tuesday by announcing on Twitter that he was considering taking Tesla private in a potential $72 billion transaction and that “funding” had been “secured.”

Tesla’s shares closed up 11 percent before retrenching after the Wall Street Journalreported that the U.S. Securities and Exchange Commission (SEC) had asked Tesla why Musk announced his plans on Twitter and whether his statement was truthful.

Musk provided no details of his funding until Monday, when he said in a blog on Tesla’s website that he was in discussions with Saudi Arabia’s sovereign wealth fund and other potential backers but that financing was not yet nailed down.

Musk said his tweet and blogs were issued in his personal capacity as a private bidder for Tesla’s stock. A Tesla spokesman pointed Reuters to Musk’s blog in response to a request for comment.

Putting aside whether Musk misled anyone, the unorthodox manner in which he announced the news and Tesla’s failure to promptly clarify the situation with a regulatory filing is a corporate governance lapse that raises questions about how companies use social media to release market-moving news, securities lawyers said.

Tesla CEO
Tesla CEO and founder of the Boring Company Elon Musk speaks at a news conference in Chicago, June 14, 2018. (VOA)

“Management buyouts or other take-private transactions already suffer from serious information asymmetry between management and public shareholders,” said Gabriel Rauterberg, a University of Michigan law professor.

SEC rules typically require companies to file an 8-K form within four business days of a significant corporate event.

While several securities lawyers said Musk’s tweets alone did not trigger this obligation, such a filing would be prudent given the unusual circumstances, David Axelrod, a partner at law firm Ballard Spahr LLP, said.

“An 8-K would provide some more details, it would say what stage negotiations are in, and provide more information than 53 characters in a tweet,” he added.

Full and fair disclosure

SEC guidelines published in 2013 allow companies and their executives to use social media to distribute material information, provided investors have been alerted that this is a possibility. Tesla did this in a 2013 filing.

But such disclosures have to be full and fair, meaning the information is complete and accessible by all investors at the same time, a bar that Musk’s tweets may not have met.

“Twitter is not designed to provide full and fair disclosure. That doesn’t mean that you couldn’t, but in a series of 20 to 30 characters I’m not sure you’re getting full disclosure,” said Zachary Fallon, a former SEC attorney and principal at law firm Blakemore Fallon.

 

Elon Musk
Elon Musk, founder, CEO and lead designer at SpaceX. (VOA)

The SEC declined to comment Monday.

Securities lawyers said there was also a question mark over whether Musk selectively disclosed information on the possible terms of the deal when he subsequently replied to followers, two of whom claim in their handles to be investors.

Those tweets were not immediately visible to all followers of Musk’s main feed until he retweeted them.

History of Twitter use

The 47-year-old billionaire’s history of joking about Tesla and using twitter to bait his critics also appears to have undermined trust in Musk’s feed as a reliable source of company information, with many investors initially believing Tuesday’s tweet was a prank.

You May Also Like to Read About- The Japanese Bombings And American Falsification

In his blog, Musk said he made the announcement on Twitter to ensure all investors were aware of his plan before speaking with the company’s largest shareholders.

But his claim to have done so as a private person presents a potential conflict of interest, said Nimish Patel, a lawyer with Mitchell Silberberg & Knupp.

“If you’re speaking on behalf of the company using resources like Twitter and the company website, while at the same time saying you’re a private individual expressing your own personal views, you are being inconsistent and creating confusion for investors. And when there’s confusion, the SEC is likely going to get involved,” he added. (VOA)