Tesla and Musk await market verdict on failed ‘take private’ plan

Investors on Monday will render their verdict on Tesla chief executive Elon Musk's decision to abandon a proposed $72 billion buyout to take the luxury electric car maker private.

Already, Germany-listed shares in the company have fallen more than 3 per cent in early deals on the Tradegate exchange.

Mr Musk said late in a blog post late on Friday that he would heed shareholder concerns and no longer pursue a $72 billion deal to take the luxury electric carmaker private, abandoning an idea that stunned investors and drew regulatory scrutiny.

Tesla shares have been trading well below their level on August 7th when they rallied after Mr Musk announced on Twitter he was considering taking Tesla private for $420 a share, saying funding for the deal was “secured”.

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Mr Musk and his company face a series of investor lawsuits and a US Securities and Exchange Commission investigation into the factual accuracy of that and subsequent tweets.

Mr Musk said that his decision to scuttle the proposed deal was motivated in part by existing Tesla shareholders who said they wanted the company to remain publicly-traded.

Large institutional shareholders had limits on how much they could invest in a private company, and there was no proven path for most retail investors, who are among his most ardent and adoring fans. “The sentiment, in a nutshell, was ‘please don’t do this,’” wrote Musk.

The trading on Monday will be a test of how investors are taking the demise of the buyout plan, and their views on whether Mr Musk, who owns about a fifth of Tesla, can avoid going back to capital markets to raise more cash.

"We have no idea how the shares will react on Monday, as the market seemed to conclude last week that the deal would not get done, for whatever reason," Cathie Wood, chief investment officer of ARK Investment Management, wrote in an email on Sunday.

Tesla’s shares already had fallen nearly 10 per cent below their level on August 7th, just before Mr Musk tweeted that he had “funding secured” for a buyout at $420 a share.

Investors in Tesla’s bonds and convertible debt also had shown scepticism that the buyout would materialise during the days after that tweet, and a subsequent blog post in which Mr Musk made a case for going private.

People familiar with events surrounding the now moribund plan say that Mr Musk was perhaps spooked by blowback from investors he was sure would support him, including key backers from Saudi Arabia, according to other people.

His vocal ambitions to take the business private and publicity surrounding the potential role of Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, stirred unease among Saudi officials, according to people familiar with the matter who asked not to be identified.

The Saudis were unhappy about Mr Musk detailing his talks with the kingdom’s sovereign wealth fund in an August 13th blog post, where the CEO justified his earlier tweet about “funding secured” on their interest, the people said.

On top of that, there were concerns about potential fallout from shareholder lawsuits and the SEC investigation, the people said.

With the idea of a buyout off the table, investors will focus on Tesla’s efforts to become profitable, the company’s cash reserves and what steps the CEO could take to raise fresh capital.

Tesla had $2.78 billion in cash at the end of the second quarter, after a record $718 million loss. In early August, before the buyout plan was made public, Tesla reiterated a forecast that it would achieve a profit in the third and fourth quarters, under normal accounting rules, and Mr Musk said the company would not need to raise more cash.

A Tesla spokesman on Sunday referred to those previous comments. One of Tesla’s biggest challenges is ramping up production of its latest vehicle, the Model 3, which is critical to its profitability goals.

Analysts have suggested a capital raise may be required soon to boost investor confidence. – Reuters / Bloomberg