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Tesla shares dip after Elon Musk proposes going private

08 August, 2018, 22:48 | Author: Sara Gill
  • Flags fly over the Tesla Inc. Gigafactory 2 which is also known as RiverBend a joint venture with Panasonic to produce solar panels and roof tiles in Buffalo New York

Tesla's stock has swung wildly in the past several years, hit by the company's production issues as well as Musk's own explosive remarks on Twitter that have turned off investors.

Six of nine members said in a prepared statement Wednesday that Musk began talking with the board about the move last week.

Mr. Musk on Tuesday proposed taking Tesla private at $420 a share, about 11% higher than the day's closing stock price. He said funding was "secured", without elaborating.

If Musk's tweet was indeed not a joke, another problem is that it could have been illegal.

An acquisition of Palo Alto, California-based Tesla by overseas investors would likely trigger a national-security review by the Committee on Foreign Investment in the U.S. The panel, which has stepped up its scrutiny and blocked some deals lately, could impose conditions, including limits on control of the company and information sharing.

The board on Wednesday.

Some Wall Street analysts were skeptical of Musk's ability to gather the huge financial backing to complete such a deal, given that Tesla loses money, has $10.9 billion (8.5 billion pounds) of debt and its bonds are rated junk by credit ratings agencies.

"What does Musk mean by 'funding secured?"' asked Toni Sacconaghi, an analyst at Bernstein who has always been bearish on Tesla shares.


The deal would be the biggest leveraged buyout of all time, beating the $45-billion record set by Texas power utility Energy Future Holdings.

In a release, board members Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice, and James Murdoch said Musk opened the discussion last week.

The issue of share accumulation by outsiders emerged only recently as reports that Saudi Arabia's public investment fund had built up a stake from 3 to 5 percent after its offers of purchase of new shares in Tesla were spurned by the company.

Musk later tweeted that existing stockholders could choose whether to hold onto their shares or sell them to the new investors for $420 a share.

He said that would allow Tesla to "operate at its best, free from as much distraction and short-term thinking as possible".

'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, ' Musk wrote in a letter to employees.

Musk is already CEO of another private company: SpaceX. Musk has feuded publicly with regulators, critics, short sellers and reporters, and some analysts suggested that less transparency would be welcomed by Musk.

If the content of Musk's tweet was not true, lawyers argue, it could expose Tesla's mercurial chief executive officer and the company to regulatory action and private lawsuits. Tesla's other board members are Musk, his brother Kimbal Musk and venture capitalist Steve Jurvetson.

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