So, it was the Saudis after all.
After a week of speculation about who would provide the many billions of dollars to take Tesla private, Tesla CEO Elon Musk confirmed in a Monday morning blog post that the managing director of “the Saudi Arabian sovereign wealth fund” has “strongly expressed his support for funding a going private transaction for Tesla at this time.”
The post is Musk’s way of signaling to the SEC that he was not guilty of market manipulation when he tweeted on Tuesday that he had “secured” funding for taking Tesla private at $420 per share. As such, it’s a reasonably good defense, which would probably stand up before a jury.
It’s not an ironclad defense, however. For one thing, Musk says that “obviously, the Saudi sovereign fund has more than enough capital needed to execute on such a transaction.” This might be obvious to him, but isn’t really obvious to the rest of us, since Musk doesn’t specifically identify the source of the funding. By all accounts it’s Saudi Arabia’s $250 billion Public Investment Fund (PIF), but it’s not clear how much money the PIF has, or could raise, if it wanted to make an eleven-digit investment in Tesla.
This is a crucial thing to know, because Musk seems to be operating on two assumptions about any going-private transaction, both of which are highly questionable.
The first is that roughly two-thirds of Tesla’s current shareholders would choose to remain shareholders in the private company, thereby slashing the amount of new money that any such transaction would require. Is there any reason to believe that Tesla’s largest shareholders would want to give up all the liquidity and disclosure and SEC protection they currently enjoy, just because Elon Musk would prefer to be running a private company rather than a public one? Ever the optimist, Musk thinks he can make the sale. But in the hard-nosed world of professional investment management, it’s hard to see a lot of enthusiasm for the idea.
Musk’s second assumption is that so long as the shareholders are broadly the same and he doesn’t change the board of directors too much, this transaction would not count as a “change of control” as far as Tesla’s bonds are concerned. This is key: If going private is a change of control, then Tesla would have to buy its bonds back at 101 cents on the dollar, and would therefore need many more billions in funding.
The most likely outcome, then, is still that Tesla remains a public company—that after “considering” going private, and talking to big shareholders, Musk will ultimately decide not to make a bid. So long as he can make the case that he pursued the possibility in good faith, which is what Monday’s announcement is trying to provide evidence of, he would probably avoid much more than a slap on the wrist from the SEC.
Still, whenever Elon Musk is involved, anything is possible. Maybe the Saudis will be able to come up with so much cash that the going-private transaction actually happens. Or maybe the whole Saudi claim falls apart, and Musk will end up facing criminal charges.
In the meantime, all of the talk about Tesla’s structure and governance is going to consume an enormous amount of Musk’s time. This is the mother of all distractions. Which is ironic, given that his stated reason for going private in the first place is to avoid the distractions involved in being a public company. But the fact is that Musk is the distraction. And whatever happens with the going-private deal, he will continue to suck up an inordinate proportion of the market’s attention. He wouldn’t have it any other way.
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