So Elon Musk tweeted a series of erratic comments stating that he is considering taking Tesla private at $420 per share, which represents a 23% premium on Monday's closing price of ~$340. As a result the stock shot up, reports were the tweets might be fake, volatility is ridiculous, and now trading in the stock is halted. I am not a TSLA believer. With that said, this is all very interesting. Questions are as follows:
1.) Who could possibly take TSLA private?
2.) Why would they take TSLA private?
3.) TSLA is bleeding cash, where is the exit?
4.) Are the tweets real or was Musk just baked and tweeting stuff out, the $420 number is dubious (if you know you know)?
discuss
@APAE" @Layne Staley" your thoughts on a private buyer would be appreciated
@CuriousCharacter" you are committed to your long position in the company, I'm sure you have some input to provide
Financial Times is saying that the Saudi Sovereign Wealth Fund might take it public. Plausible given that they have a $2B stake in Tesla already.
Think this goes without saying, but there is no PE investor that will do a take private on a cashflow negative company. Hedge funds are out. No other non-PE / HF institutional players [that I know of] have nearly the kind of risk appetite or asset base for $70bn+ take private. Don't see any strategics touching this given all the instability / uncertainty, regardless of whatever IP or R&D capabilities could be obtained. I call BS
Yeah I can't imagine buying TSLA at these prices.
This aged well
Musk is having a psychotic break because he is locked out of the capital markets and they will declare bankrutcy soon.
My thoughts exactly....
I love how I get monkey sh*t for agreeing with the obvious lol
Calling it now: Toys “R” Us will rise from the dead and prevail as the perfect strategic acquirer. Same customer base, superior level of quality control, and unprecedented operational capabilities; perfect fit, many synergies!
With Blockbuster co-sponsoring
And MoviePass as well
Don't forget IceJuice!
I'll wait until the dust has settled to comment.
Fuckin cop out. There is NO FUN in that.
Lol, I don't really have an opinion to be honest.
Valuations are super high, interest rates are low, and there are massive pools of capital in search of a home...
I can't imagine anything Musk says publicly would be in violation of the letter of the law...
Musk has always been able to pull a rabbit out of his hat, and Tesla released a statement publicly...
I've got no insight, I didn't see this coming.
Like others have said above I have no clue how they fucking fund this potential LBO.
What do you think of this:
https://twitter.com/DaveRiv/status/1026949192390868992
Lol... so simple. Musk just needs to convince institutional public funds to tie their capital up potentially for years in a private deal (something that they're potentially banned from doing for fiduciary reasons).
I like this analysis, was thinking something similar. Musk knows many wealthy people. Capital markets are just an option. $10BB to own the future of transportation? Some people have that kind of money to burn. Existing stakeholders I'm sure would have their own opinion but if they're THAT heavily invested now, what makes us think they're going to jump ship now?
You know what I think happened? Musk took a look at Dell. He woke up one day and thought to himself "You know what? I'm Tesla, just like Jobs was Apple. None of this would exist without me. I'm sick of these pissant nobodys who picked up 0.00001% of my company thinking they're going to tell ME how to run MY company. These analysts and bankers who've never made a billion dollars are bitching and moaning because they don't get as much of a cut as they think they're entitled to for simply existing? I invent the future and a bunch of twats at a bank ridicule me for not making them enough money fast enough? You know? Fuck that. I'm taking my toys and going home...and I'm keeping ALL the profits."
This company never gets boring, I'm got a few grand in the ring and I'm eating popcorn. Enjoy the show hahaha
To the guy tweeting about getting shareholders to go along with it...that’s not the issue. The issue is obv who is on the other side and actually willing to transact. Why wouldn’t that group just buy BMW and put billions of extra money to work to push out BMW electrics or just buy BMW and Ford and go private with real cash flow to move electrics? There is nothing special about this technology.
When this doesn’t happen - it could very well be the beginning of the end.
Clearly this is a Meth mistake... er... I mean Math Mistake. $420/Share means you're talking north of metric fuckton (yes, that is the technical term for this) of leverage for a company that is so far in the red I wouldn't want to touch it with a 10 foot pole. Based on some quick numbers, 420/Share, 170MM Shares outstanding, less Musk's 20% ownership, and 8.8Bln in net debt, that means he only needs to raise ~66ln for the deal. Then there's the SPAC component, which I don't understand - voluntary swap of shares for ownership in a SPAC to reduce the outstanding payout just doesn't make sense to me. However, if Musk can get another 20% of the outstanding shares put in a SPAC, that means 40% of the outstanding shares are reduced, lowering the burden to closer to ~51.6Bln . Holy shit, Musk could theoretically pull this off at a much lower valuation. All I know is that this deal has RJR Nabisco written all over it.
And if it's actually a Meth mistake, I'm putting the line at -350 on Musk going to rehab over this.
So what do you think actually happens?
Bin Salman uses the $100 billion that he "repossessed" due to "corruption" and purchases TSLA all cash?
Well, let's wait until the 8K is published so people can read it first. Everything hinges on the SPAC component. That has to be an absolute given because its the most volatile component. I don't know how I see this playing out. I just don't see it ending well though. I think this falls through, and I want to reiterate the line is -350 on Rehab.
I think that the deal moves from fantasy to reality of Musk can manage to get the price down to about $40Bln to 45Bln. Assuming that we stick with $45Bln, that means though, that 85MM shares outstanding (51MM shares ex. Musk) need to be committed to the SPAC. At $45Bln, it's much easier to attract investors, especially if Saudi Arabia is willing to double down and commit more capital for a buyout. Say the Saudis commit $5Bln to the buyout. That leaves $40Bln to be funded. When you look at the availability of dry powder held in VC and PE War Chests, I think you end up with multiple funds splitting the costs and buying a smaller $5Bln chunk of investment instead of committing larger amounts of capital. This means you only need 8 funds to join in, which becomes more manageable despite the chaos.
RJR was my first thought as well.
Interesting quote showing his personality here: "If the process ends the way I expect it will, a private Tesla would ultimately be an enormous opportunity for all of us."
Typical double-edged Elon swagger
Well, RJR is the only way to go if you want to make an analogy. As far as his comments go, he has to hedge his bets. If he doesn't he's a fucking idiot.
The Saudis perhaps teaming up with Softbank's vision fund? Still no way you can put more leverage on this, already have $11bn+ at god knows what leverage (EBITDA is all made up here anyway) so that leaves $60bn of equity (net of Musk shares which he used as collateral for loans to support space x and other stuff I might add).
Worked well for Michael Dell. Being public has spawned a lot of (unnecessary?) headache for Musk, although he does seem to thrive on it.
I know SpaceX is paying employees with stocks that are planned to not go public until they bring people to Mars, I wonder what Tesla's end goal will be. He's already got every auto maker and their mum developing electric cars which was kinda his goal from the beginning.
YES! Someone above did the math and basically $10BB +/- is needed if the bulk of the current big shareholders are on board. Everyone projects their own small minded point of view onto Musk but I think you're right and I agree.
He's got to be sick to death of the twerps on TV and at banks trying to give him a hard time. These people don't matter, they just distract him from running the company. Frankly, now that we're talking about it, I'm surprised he didn't take the company public a long time ago.
I agree with the headache portion and as someone high enough in a F500 to have seen it, dealing with Wall Street analysts and the expectations of quarterly progress of a public company really sucks sometimes.
That being said, it was certainly not unnecessary for Tesla. People seem to forget that this is the deal you make when you take everyone's money. The quarter to quarter scrutiny is a bitch, but you sign up for that when you choose to go public, which is not mandatory.
My poorly explained 'unnecessary' comment was there because Elon says he has the funding to go private now, so he doesn't need everyone's money anymore. There's not much upside for the headache anymore (if the funding source is onboard with his methods and goals).
https://www.tesla.com/blog/taking-tesla-private?redirect=no
Empty bullshit statement. Does anyone believe such a massive deal has been in the offing and no one (not bankers, reporters, analysts etc.) got wind of it?
This just confirms Musk is the greatest stock promoter of all time. Look at how his other private companies time their PR and stunts BTW.
If the company was smaller the SEC would have come after them very very fast.
(Also fuck the SEC)
Driving a car without sound is like eating food without taste. Sure, you get where you're going, and you get the nutrients you need. But it's absolutely too sterile (of an experience).
That's why I buy Italian. The sound at 6000 rpm is intoxicating.
The Stock manipulation Is unreal
"Funding Secured."
I hope for Elon's sake that when the SEC comes knocking on his door, he has proof of a serious offer and isn't just making up BS.
Haven’t read any of the comments but I honestly think this is Musk’s “show” of how confident he is in the company and the long term vision and has 0 plans to actually take this private. A last ditch attempt to avoid a Ch 11
--
We have a winner... what happens to the short sellers in the mean time?
They get shafted as usual.
Bravo, +1 SB. If it goes down as planned this is either a.) going to be a boon for some SWFs/ China or b.) be one of the biggest cautionary tales in the history of private investment. I'm bearish so, at the moment, I'm rolling with b.
I heard this was all to keep his stock price high enough to trigger a stock redemption of his convert...any thoughts?
I think the fact that there is a lack of an 8-K or any real confirmation behind this absurd comment and potential securities fraud is definitely being overlooked lol. Also a subsequent comment that the statement was not made on behalf of the full board - "The statement was not on behalf of the full board, but rather a comment from board members Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonia Garcias, Linda Johnson Rice and James Murdoch".
Does he honestly think private debt holders who could seize assets will be better to deal with than short sellers? The biggest issue with this company is not pressure from public markets. I'd start with addressing the dumpster fire of a balance sheet, lack of cash flows, shrinking liquidity or maybe how to successfully run a car company.
** to whoever threw MS: https://www.wsj.com/articles/elon-musks-flawed-plan-for-tesla-sharehold…
This^^^. Going private does not solve the issue that the company does not produce positive FCF. How many more EV subsidies do they have left? Does each OEM have a set number or is it a number for the entire industry?
It could be the Chinese, but then there's Trump. There's NXP and Qualcomm. There's the trade war, CFIUS, etc. China could work theoretically, but probably not in these current times.
Then he’d still have burned the short sellers, changed the narrative around Tesla (instead of bankruptcy it would be buyout talk), without having any manipulation come back to him.
Sure short sellers might hold banking into the crash coming after the deal blows up, but you can’t see this for sure
Love reading your comments / insight. +1
True about the Chinese having large dry powder. However, given the political instability on both sides, a cross-border deal this size isn't likely to be approved by the U.S. given that it's the tech that the Chinese wanted (i.e. you want to eliminate at least one SWF and any entity tied to the Chinese gov.)
My feeling is that Elon is basically Haddon from Contact. They both have massive technological fortunes and are at least sightly insane. We'll find him in 20 years laughing at us poor earthlings from his research station on Mars.
Total bullshit. Trump will shut down anything from China on Day 1.
this was a good post, why the edit?
No buyout is going to happen Elon is literally having a psychotic break and the company will go banca rota.
further commentary (the regulatory aspect regarding foreign investment is extremely interesting):
https://www.cnbc.com/2018/08/08/wall-street-doubts-musk-has-funding-sec…
https://www.reuters.com/article/us-tesla-musk-buyout/elon-musks-tesla-b…
Personally, I have no issues with Tesla. If he can figure it out, the goal will be to become to energy what Amazon is to our online consumption habits. I could be wrong about it, though, as energy might be best unconsolidated.
Lol so he is going to transform an automotive company into an energy company? I'm confused by your post.
It already is an energy company: Solar/renewables, batteries, charging. Just like Amazon's non-ecommerce business is more impressive from a margin perspective, Tesla has the potential to have something large and visible + sexy on the front-end, but then make most of their money running an energy profile on the back-end.
I think the important component is cutting costs, pushing vehicle prices cheaper, getting people cars on a mass scale because it will only extend its business in these other markets.
The thing that makes this Trump-esque tweet so bad is that it could be stock manipulation if he doesn't come through or at least show tangible evidence backing what he said in the tweet. That's enough to account for a lot more risk in TSLA at this point.
Kanye will bail him out this time
Musk will use the increase in the stock price that this chatter has created to issue more debt...which will solve his near term cash problems. Then the private "buyer" will lose interest...but Musk won't care, because the fresh (cheap) debt will enable Tesla to operate for the foreseeable future.
Cash flow problem solved.
The debt piece of this take private doesn't add up to me. I can't really see this being done as an LBO, but maybe Elon is able to cobble together enough equity and roll some portion of the existing debt. I certainly can't see this taking on much (if any) additional leverage from the institutional credit markets, and certainly not at a reasonable cost. The majority of operations to date have been financed with equity or converts, which are less focused on the cash flow picture and get the potential return of the upside, but come at a high cost of capital.
The current high yield bonds are public and rated, but that isn't necessarily a function of Tesla being in the public equity markets. It is entirely possible for a public equity company to have unrated private debt provided through the bank and/or institutional credit markets.
In the case of Tesla, the investment banks that arranged the high yield notes likely believed structuring them the way they did would lead to the best execution. Getting the bonds rated, having public financials, having 144A registration, etc. would help to maximize unsecured high yield capacity from the markets. Given the lack of free cash flow here (among other fundamental credit issues), the high yield guys are looking at this as a yield play with some downside protection from enterprise value, taking a small position in their books, and sleeping on it,
Taking the company private doesn't help with the overall credit story. At least creditors currently have access to a wealth of information from public filings, earnings calls, analyst commentary, etc. A lot of that information goes away if Tesla goes private.
So, for the traditional high yield investors, they are looking at a potentially riskier credit profile (higher leverage) and less information on which to analyze and monitor that profile. Add in the fact that the existing high yield bonds are already trading well below par and indicating waning credit support (especially at prevailing coupons)? The take private picture makes little sense. There is probably some additional unsecured capacity further out on the curve, but the yield demanded would go up here, not down.
Outside of the unsecured and convert markets, the company also has relatively limited capacity for incremental secured funding, as a lot of the hard assets have been pledged to their ABL, and additional assets (Fremont factory) were recently added to that borrowing base in 1Q. There are some other assets, such as IP and other factories (Gigafactory), that could perhaps be pledged to get additional secured funding from ABLs or term lenders, but it is more of a "last resort" play and may not permit material increases in leverage. Such an action would also further subordinate the unsecureds and reduce incremental capacity from that market.
Creditors here understand that the company will be burning cash and demanding capital to fund growth, but I don't think they are contemplating a leveraging event that complicates that picture and accelerates the cash burn through greater interest payments.
Finally, there was mention of a private fund. Even if credit was extended from a private fund with a relatively unconstrained mandate, it is still credit, and fundamentals such as free cash flow generation apply. Depending on the mandate, yield target, etc., certain pockets of credit may be a bit more tolerant of the story and runway to generating free cash flow, but that day still must come for them. They aren't sharing in the upside here--they are just looking to clip coupons and get repaid on their principal. You also have an issue of figuring out what type of fund to market this transaction to, as it is somewhat unusual/esoteric, and you would also need to find a relatively large universe of creditors that share that mandate given the enterprise value/magnitude of debt being discussed.
If Tesla was already capable of accessing such capital before, why hasn't it? Why are they limited to the gobbledygook mix of asset-backed financing, high yield bonds, convertible bonds, and SPV they have in place today? Is Elon really avoiding maximizing use of the debt markets, or have those debt markets already given all there is to give at this stage in the company's cycle?
Maybe some government-sponsored fund is willing to stick its head in the sand and back the credit truck up, but debt funding secured? I doubt it.
Unless there's some Saudi prince who truly wants to yolo their SWF on it, I don't see a LBO as realistic--yet. Maybe Tesla really does get their FCF sorted out in Q3 or Q4, but my hunch is LBO financiers will say to call them back after that happens, not before.
Now that all said, if there really isn't a Saudi prince or some other dude and "financing secured" wasn't an actual thing like he tweeted, he's going to have to fight Shkreli for the top bunk. People have gone to jail for less. I'm about as Murrrican as it gets, but let's be honest, we got bitch ass securities laws, contract-for-differentials and all the bullshit about being an "accredited investor" are just two examples off the top of my head. So if we hem people up over THAT, imagine what the feds will do to claiming a tender offer at $420 if there isn't one.
Edit: regardless of what people think about the business long term (I admit I think it's overvalued, LBO/whatever private move or not), I don't think people get just how serious the "financing secured" comment is. He easily could get hemmed up even harder than walking down the street with a plastic straw in San Francisco.
Saudi oil hedge
Based on his tweets, it sounds like he wants (whether possible or not is another a matter) to do a voluntary delisting by getting the top xx% shareholders to agree and cash out the remaining and probably the convertibles. If he is able to get equity funding for that last bit, this doesn't have to be a leveraged transaction.
A). I don’t think he has a funding source. Simple reasoning if he has funding then he met with lawyers. Lawyers would not tell him to go on a war with shorts on Twitter and then announce the biggest go private transaction in history on Twitter. Massive deals are done with lawyers for a reason. You don’t want to get sued by prior investors for bad disclosures.
B) public markets are not limiting musks. They’ve given a public market valuation of like 45 to 85 billion for the past 3 years. He has plenty of capital to fund whatever he wants in the public market.
I think of quarterly reports as like a final or report card in school. They help you perform better and set deadlines. You do a lot of learning studying for a test. Well quarterly reports are just a way for your investors to track your performance. It’s the ceo job to get the investors to track the performance he wants to show them. The public markets have given musk a 60 billion plus valuation for a while. Public market investors understand his vision. Public markets have had no problem letting Bezos do his thing at valuations over $100 billion for a long time with no earnings. Amazon basically refutes the “myth” that being public means you can’t build for the long term and have to focus on stupid metrics like quarterly earnings.
C). I’m a fairly decent believer that musk is innovative but isn’t operating on a business plan that is likely to ever generate a ton of earnings. Car companies just don’t make that much money and have low margins.
D). I also think musk is losing his mind. He’s on twitter too much. He’s running off to Thailand with a stupid unusable submarine. He’s calling a legit hero a Pedo on Twitter. ... why the fuck does a ceo of companeis with combined valuations of almost $100 billion getting into stupid Twitter fights? Can’t you like invent the future?
Full disclosure. I am short Tesla as of today. Sold $372.30. Not big 50 shares. Oh well might lose $2500. Should have sold a higher price but waited till SoftBank said they weren’t investing. The only two entities that could quietly fund a massive buyout is SoftBank and maybe the saudis (they have some financial issues themselves too many princes to feed). China can’t do the deal...regulatory issues.
This is turning into theranos and I once really respected musk even if the stock was too expensive for my taste. It feels like he’s losing control of reality.
FWIW if musks really wanted to save the world I think he should outsource manufacturing to Detroit. They have way more experience and that’s the boring part of the business. He should focus on battery technology and the areas Tesla has an advantage. Then he could produce model 3 at scale...1 million vehicles a year
How liquid is the Saudi SWF really? Serious question, not familiar. And would they even want it?
When oil was at 40-50 they were seriously in trouble with negative cash flow. They had the issue the old king had like a thousand kids and those kids had another thousand. Lots of yachts to pay for.
I actually just got curious on this too but haven’t done the research.
If they really wanted to take down half of Tesla they definitely could find a way.
But can Tesla even take Saudi money? A few billion public market money is one thing. 50% ownership is different. How many Tesla owners want to partner with th saudis and all their human rights and terrorist issues. They might have even funded isis or at a minimum didn’t stop other gulf states from funding.
FYI Tesla actually originally outsourced manufacturing with the roadster. They insourced because it was more efficient to do everything in one location, but more importantly because there wasn't anyone that could reliably make EV technology at scale (specifically, batteries that could last more than 40 miles).
That's true. It was built on a Lotus lol
To be fair, shitposting made up things on Twitter worked well for winning the American elections.
Long Tesla
Brother Elon is going to end up in the pen for 6 months and pay a multi-billion dollar fine. Landmark case for Twitter.
Speaking of, why isn’t anyone mentioning the ramifications of his announcement? On a serious note, can’t he be pretty screwed? I thought he was already required to furnish evidence of his funding.
He's being investigated by the SEC now.
Apparently, Saudi Arabia's SWF is "uninterested" in helping TSLA take the company private. Shit is not looking good....
I'm hearing it's a Saudi fund with an expected 2/3's of shareholders converting.
Saudi Kingdom Public Investment Fund
What stops the Saudis from coming out tomorrow, saying that Elon made the whole thing up, letting the SEC investigate, driving the price down to $50 a share, and then buying them out?
Nothing. I think that's the smart thing to do now.
the SEC has issued a subpoena: https://www.cnbc.com/2018/08/15/sec-has-reportedly-served-tesla-with-a-…
until football starts, this will be my entertainment
he is coming apart at the seams: https://www.nytimes.com/2018/08/16/business/elon-musk-interview-tesla.h…
Gone by the end of September
Forecasting Sunny weather in shortsville next month
I hope this is a cautionary tale to megalomaniacs who never shut the fuck up and are narcissistic like this (ahem, Trump too). never say anything you wouldn't want read back to you, you may regret it. also, when you are petty, it distracts you from the reasons people admire you in the first place.
bezos has tweeted 4x since July 1st, one was about charity, and 3 were on blue origin updates.
And Elon - well the WSJ did this for us: http://graphics.wsj.com/elon-musk-twitter-habit-analysis/
be like jeff, fuck elon.
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