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Tesla Shares Temporarily Halted After Elon Musk Suggests He May Take Company Private

By NexChange
Capital Markets

You may not have Elon Musk to kick around anymore.

Tesla’s shares were temporarily suspended at $367 on Tuesday just after 2 PM in New York after the Tesla founder and CEO stunned investors by suggesting in a tweet that he may actually take the struggling company private.

“Am considering taking Tesla private at $420,” Musk tweeted. “Funding secured.”

Musk later clarified in a blog post that a final decision had not been made.

First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best. As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.

Tesla’s shares reopened 10 percent higher a little less than two hours after they were halted.

The Wall Street Journal notes that if Tesla went private at $420, it would value the carmaker at $70 billion, which “would be by far the biggest take-private deal in history.” At its current value, Tesla’s shares would need to grow roughly 14.4 percent to reach $420, according to the Journal.

Compounding confusion among investors about Musk’s shocking announcement is the medium on which he chose to deliver it – Twitter – and the fact that, as the Journal notes, he’s prone to trolling people about Tesla on Twitter. Its worth noting, however, that the Securities and Exchange Commission allows company’s to make announcements via social media, “so long as investors have been alerted about which social media will be used to disseminate such information.”

Musk also indicated in a later tweet that he would “create a special purpose fund” that would enable investors to stay with Tesla even if it is taken private.

Meanwhile, the Financial Times reported earlier on Tuesday that Saudi Arabia’s sovereign wealth fund has bought a 3 percent to 5 percent stake in Tesla, worth between $1.9 billion to $3.1 billion at the company’s current value.

Also, in news that would no doubt make Musk happy given that that he views himself as being at constant war with investors who have made Tesla “the most shorted stock in the history of the stock market,” CNBC reports that Musk’s tweet about taking Tesla private cost short-sellers about “$884 million in mark-to-market losses, according to estimates from Ihor Dusaniwsky, S3’s head of predictive analytics.”

Musk announced in June that Tesla would be cutting 9% of its global workforce – roughly 3,500 employees – as it ramps up efforts to finally turn the first annual profit in its 15-year history.

Read Musk’s full blog post below addressing his desire to take Tesla private.

August 7, 2018

The following email was sent to Tesla employees today:

Earlier today, I announced that I’m considering taking Tesla private at a price of $420/share. I wanted to let you know my rationale for this, and why I think this is the best path forward.

First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best. As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.

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.

This is especially true for a company like Tesla that has a long-term, forward-looking mission. SpaceX is a perfect example: it is far more operationally efficient, and that is largely due to the fact that it is privately held. This is not to say that it will make sense for Tesla to be private over the long-term. In the future, once Tesla enters a phase of slower, more predictable growth, it will likely make sense to return to the public markets.

Here’s what I envision being private would mean for all shareholders, including all of our employees.

First, I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or they can be bought out at $420 per share, which is a 20% premium over the stock price following our Q2 earnings call (which had already increased by 16%). My hope is for all shareholders to remain, but if they prefer to be bought out, then this would enable that to happen at a nice premium.

Second, my intention is for all Tesla employees to remain shareholders of the company, just as is the case at SpaceX. If we were to go private, employees would still be able to periodically sell their shares and exercise their options. This would enable you to still share in the growing value of the company that you have all worked so hard to build over time.

Third, the intention is not to merge SpaceX and Tesla. They would continue to have separate ownership and governance structures. However, the structure envisioned for Tesla is similar in many ways to the SpaceX structure: external shareholders and employee shareholders have an opportunity to sell or buy approximately every six months.

Finally, this has nothing to do with accumulating control for myself. I own about 20% of the company now, and I don’t envision that being substantially different after any deal is completed.

Basically, I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible.

This proposal to go private would ultimately be finalized through a vote of our shareholders. If the process ends the way I expect it will, a private Tesla would ultimately be an enormous opportunity for all of us. Either way, the future is very bright and we’ll keep fighting to achieve our mission.

Thanks,
Elon

Photo: YouTube

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