Tesla Inc. shares fell Monday as the boost from Chief Executive Elon Musk’s blog post detailing his proposal to take the Silicon Valley car maker private faded.
Tesla TSLA, -0.67% shares shot up more than 3% in pre-market trading as Musk’s blog post on the company’s website went up, but then turned down 1.3% in midday trade as investors parsed the statement.
Musk last week roiled markets as he tweeted “funding secured” for taking Tesla private at $420, raising a wealth of questions but posing few answers. At least one lawsuit has been filed, and federal regulators reportedly are looking into the statements.
In Monday’s post, Musk said that representatives of Saudi Arabia’s sovereign-wealth fund had approached him “multiple times” starting in early 2017 about taking the car maker private, saying they were interested in diversifying away from oil.
See also: Tesla analysts say they’re ‘as confused as anyone else’
“Obviously, the Saudi sovereign fund has more than enough capital needed to execute on such a transaction,” he said.
Wall Street has scratched its collective head over what Musk may have meant by “funding secured,” believing that precious few international pockets are large enough to finance a buyout that would cost tens of billions of dollars, with consensus emerging around needing about $40 billion.
In the Monday blog post, Musk offered that after the Saudis bought a stake of almost 5% in Tesla, they met again on July 31, and the fund’s managing director “strongly expressed” support for funding a going-private transaction.
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“I understood from him that no other decision makers were needed and that they were eager to proceed,” Musk said. “I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving. This is why I referred to ‘funding secured’” in the Aug. 7 announcement, he said.
Musk said he has been in communication with the Saudis, and that the managing direction has support for proceeding “subject to financial and other due diligence and their internal review process for obtaining approvals” and other details.
It would be “premature” to provide the full details of the plan, he said.
“I continue to have discussions with the Saudi fund, and I also am having discussions with a number of other investors, which is something that I always planned to do since I would like for Tesla to continue to have a broad investor base,” Musk said.
For Gene Munster of Loup Ventures, there's “a greater than 50% chance Tesla is private in a year, and the blog post slightly increased those odds,” he said in emailed comments.
The next steps will take several months to play out, Munster said.
Tesla needs to build a syndicate; a vehicle must be created for existing shareholders to roll their public investment into a private one; and the company will need to secure regulatory approvals and take the plan to a shareholder vote, he said.
“Our best guess is this will take 3-9 months,” Munster said.
Musk’s post “likely reduces legal risk fallout” for Tesla and “helps clarify the potential going private situation, even if a transaction is ultimately not consummated,” analysts at CFRA said in a note Monday.
Read more: Opinion: Hey Elon Musk, where’s the funding to take Tesla private?
In the post, Musk also touched on why he decided to go public with his intentions: It felt as “the right and fair thing to do” so all investors would have the same information at the same time, he said.
“If and when a final proposal is presented,” a special committee of the Tesla’s board will evaluate it, he said. “If the board process results in an approved plan, any required regulatory approvals will need to be obtained and the plan will be presented to Tesla shareholders for a vote,” he said.
He also clarified that most of the capital required for going private would be funded by equity rather than debt. “I do not think it would be wise to burden Tesla with significantly increased debt,” he said.
That would be preferable, given Tesla’s “already plentiful cash needs," the CFRA analysts said.
Musk said he expects about two-thirds of shares owned by current investors would roll over into a private Tesla, and the $420 price would be used for those who do not want to remain with a private Tesla.
Whether it is “feasible or necessary” for two-thirds of the shareholders to remain is “unresolved,” the CFRA analysts said. “Despite Musk protestations, we think remaining public has and will benefit” Tesla via access to cheap capital and free advertising, they said.
Tesla shares have gained 13% this year, compared with gains of 5.9% for the S&P 500 SPX, -0.28% and 2.2% for the Dow Jones Industrial Average. DJIA, -0.44%
