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
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
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!
What do you think of this:
https://twitter.com/DaveRiv/status/1026949192390868992
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.
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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…
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.
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.
Brother Elon is going to end up in the pen for 6 months and pay a multi-billion dollar fine. Landmark case for Twitter.