Tesla’s Big Question: Better or Worse Off as Private Company

Gladys Abbott
August 8, 2018

Musk has been under intense pressure this year to turn his money-losing, debt-laden company into a profitable higher-volume manufacturer, a prospect that has sent Tesla's valuation higher than that of General Motors Co.

Tesla stock opened at $369.09 on Wednesday, sliding almost 3 percent from its Tuesday closing price of $379.57.

In a statement on Tesla's website on Wednesday, six of Tesla's nine directors said the board had met several times over the last week to discuss such an idea and was "taking the appropriate next steps to evaluate this".

Elon Musk disrupted multiple industries on Tuesday when the Tesla CEO [NYSE: TSLA] took to Twitter to float the idea of taking the Silicon Valley automaker private.

But can Musk really strike a deal?

Earlier this week, Tesla CEO Elon Musk announced out of the blue - and on his preferred social media platform - that he was considering taking Tesla private at $420 a share.

Musk has some sensible reasons for going private.

But the board offered no further details of the proposal or its funding, sparking new questions about the feasibility of the master gambit Musk revealed in a surprise series of midday tweets on Tuesday.

It's unclear if Musk has misled investors, let alone whether he has done so intentionally.

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Musk also said that shareholders would have the option of selling their stakes or retaining their shares for partial ownership of a privately held Tesla.

Tesla may find it hard to line up banks and investors to lend it large sums. "With Tesla unable to take on more debt, we wonder who may fund the potential deal and end up as a new large shareholder", Jefferies said in a note.

"Just because" Musk wants it at $420 "doesn't mean that there aren't other people who might be willing to come in with another transaction that would be more beneficial to shareholders", Pitt said.

Will going private solve Tesla's problems? The fund then reportedly proceeded to buy large amounts of Tesla stock on secondary markets, according to the Financial Times, and is now one of Tesla's eight biggest shareholders.

The company has $2.2 billion in cash and $9.5 billion in debt. The move would also have little effect on Musk's current stake in the company, which rests at about 20 percent in current publicly traded form. That's a key reason why Michael Dell made a decision to list shares of Dell Technologies (DVMT) on Wall Street again after taking the company private in 2013.

"They're being bombarded with questions that we don't think are as relevant to the long-term value of the company", said Sam Korus, an analyst for ARK Investment Management, which had 443,874 Tesla shares as of June 30.

He could also turn to his individual investors, who own almost 13 per cent of Tesla's shares.

Most analysts were skeptical, but some said a deal could materialize if Musk succeeded in lining up the right funding.

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