Elon Musk took to Twitter on Wednesday to declare that he might take Tesla private shortly after a report that Saudi Arabia's sovereign wealth fund had taken a $2 billion stake in the electric car-maker.
Mr Musk’s short tweet left investors guessing about whether the mercurial entrepreneur was serious. The Tesla boss dropped his bombshell on Wall Street at lunchtime in New York, sending Tesla’s shares up as much as 8.5 per cent.
“Am considering taking Tesla private at $420. Funding secured,” the Tesla boss tweeted. The company’s shares gained more than 7.2 per cent on the news to trade above $366 before being halted.
Mr Musk appeared to add further details to the plan in a later tweet, saying: “My hope is all current investors remain with Tesla, even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity’s SpaceX investment.”
Tesla did not immediately respond to a request for comment on the tweet.
Mr Musk's announcement came less than an hour after the Financial Times disclosed that Saudi Arabia's Public Investment Fund had amassed a stake of between 3 per cent and 5 per cent this year, putting it among Tesla's largest investors.
At Tesla’s current share price, the Saudi position is worth $1.7–$2.9 billion. The stake, which is below the 5 per cent threshold that requires public disclosure, makes the Saudi fund one of Tesla’s eight biggest shareholders, according to Bloomberg data. Mr Musk has a 19.9 per cent stake.
The lack of any further information and Mr Musk’s recent history of using Twitter to troll his critics left many observers questioning whether he was serious about the buyout idea. Adding to the suspicion was the mooted $420 price for Tesla’s shares, which was seen as a possible reference to 4/20, with April 20th a day celebrated by marijuana smokers.
Press reports
US companies are seldom obliged to respond to press reports, but if they decide to make a statement it has to be truthful otherwise it can be considered stock manipulation.
A top Wall Street lawyer said that “there is no way Musk can put out a false statement on Twitter and not get in trouble. That is a plain and simple violation of existing securities rules.”
If found to have put out a misleading statement Mr Musk would be in violation of Rule 10b-5 under the Securities Exchange Act of 1934. The SEC declined to comment.
The Saudi fund, which has more than $250 billion in assets, initially approached Tesla and Mr Musk to express interest in purchasing newly-issued shares in the company. However, Tesla did not act on the interest, one person informed on the matter said.
Instead, the Saudi state fund acquired the position in secondary markets with the help of JPMorgan. Mr Musk and Tesla are aware of the Saudi fund shareholding, this person said.
Mr Musk has resisted selling new shares this year even though rating agency Moody’s and many Wall Street analysts have argued he should build a bigger financial cushion.
Tesla burnt through $1.8 billion in the first half of the year, leaving it with cash reserves of $2.2 billion at the end of June. Mr Musk maintains that the electric car-maker will be cashflow positive in the final two quarters of this year.
Model 3 sedan
At $420 a share a Tesla buyout would value the company at $70 billion, or 10 per cent above the peak share price it reached 14 months ago. Since then problems with ramping up production of the company’s new Model 3 sedan and a severe cash outflow have provided extra ammunition for short sellers who have attacked the company’s stock, raising Mr Musk’s ire and leading to huge volatility in the shares.
Tesla and JPMorgan declined to comment on the Saudi stake sale. The Public Investment Fund could not be reached for comment.
The Saudi fund is driving the economic diversification efforts of Prince Mohammed, who is looking to wean his country's economy off a reliance on income generated from oil. Its operations are managed by the crown prince's trusted lieutenant Yasir al-Rumayyan. – Copyright The Financial Times Limited 2018
