8 Aug 18

Musk wants to re-privatise Tesla at $420/share

With a simple, nine-word tweet, Elon Musk sent shockwaves through the automotive and financial worlds Tuesday night: “Am considering taking Tesla private at $420. Funding secured”. 

Tesla, the California-based manufacturer of a range of electric vehicles, went public in June 2010. At that time, each of the 13.3 million shares in the company could be had for just $17 apiece. 

11% up
Despite its difficulty in turning a profit, Tesla's stock has appreciated considerably since then. Following Mr Musk's shock announcement, shares shot up by 8% almost immediately and trading in Tesla stock was temporarily halted. When it resumed, stock rose further, closing 11% up; or just under $380.

At present, there are just under 189.8 million Tesla shares in circulation. Multiplied by Musk's valuation at $420 per share, that adds up to a total company value of just over $71.3 billion.

Wild swings
In a letter to Tesla employees, Mr Musk elaborated on the company's proposed 're-privatisation': 

“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 for the long term”. 

Shorted stock
Mr Musk also pointed out that Tesla, as the 'most shorted stock in history', was the target of large numbers of people with 'perverse incentives' to attack the company. 

All of that is at odds with Tesla, a company with a long-term mission. Mr Musk cited the example of his aerospace company SpaceX: “It is far more operationally efficient, and that is largely due to the fact that it is privately held”. The CEO did not exclude the prospect of Tesla returning to the stock market, once it's in a period of slower growth. 

Four-point plan
Finally, Mr Musk revealed a four-point vision of Tesla as a private company (again):

  • All current shareholders can retain their shares or opt for a buy-out at $420 per share (a 20% premium over stock price following the Q2 earnings call). 
  • All Tesla employees should remain shareholders, as is the case with SpaceX.
  • Tesla will get a similar structure to SpaceX, but the two companies will not merge. 
  • It's not about more control for Musk: the CEO owns about 20% of the company, and that will largely stay the same after the deal.

“Inexcusably dumb”
“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”, Mr Musk concludes.

Writing for MarketWatch, columnist Therese Poletti lambasted Mr Musk for his stunning announcement: “(He gives) the impression that he is not a responsible public-company CEO (…) As seems to be typical for Musk and Tesla, the end result appears to be a justifiable move, but the means to get there are inexcusably dumb”.

Image: JD Lasica, CC BY 2.0

Authored by: Frank Jacobs