Once again, Elon Musk, the brilliant financier and master pitchman has overcome the news of the worst quarterly results in the company's history, an outrageous cash burn, and production problems to renew investor confidence and get the public to take notice -- simply by tweeting a message that he is considering taking Tesla private at a significant premium. Halting trading on the New York Stock Exchange while the message was confirmed.
Thus, in one masterstroke, Musk suggested that he and other investors had enough confidence in the company to take it private. Making some investors believe that Musk knows something great is about to happen and is moving forward. And, suggesting that all of those pesky reporting requirements and Wall Street's preoccupation with quarterly results is impeding the company's long-term progress.
Will it happen?
Musk has a pattern and practice of over-promising and under-delivering. And, any such arrangement would be subject to stockholder approval. So it appears to be a crapshoot whether or not Musk will pull the trigger and go private.
Is this a Musk ploy?
It is known that the Saudi's sovereign wealth fund took a $2 billion dollar stake in the company prior to Musk's tweet about the possibility of going private and being fully-funded if he chooses to go forward with the plan. It appears that Tesla's capitalization increased by $7 billion at the close of trading.
Some question if this is not some type of market manipulation, possibly sanctionable under SEC regulations, designed to cripple the short sellers who needed to increase their margin contribution to maintain their short position. Some analytics firms have placed the short seller's losses at approximately 4+ billion dollars, even if the deal was consummated at the price provided by Musk in his memo.
Another key question is why Musk did not follow established protocol and ask that trading be halted prior to the announcement and then resumed when an orderly market could be assured.
Musk's magic message...
Taking Tesla Private
7 August 2018
The following email was sent to Tesla employees today:
Earlier today, I announced that I’m considering taking Tesla private at a price of $420/share. I wanted to let you know my rationale for this, and why I think this is the best path forward.
First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best. As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.
I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve.
This is especially true for a company like Tesla that has a long-term, forward-looking mission. SpaceX is a perfect example: it is far more operationally efficient, and that is largely due to the fact that it is privately held. This is not to say that it will make sense for Tesla to be private over the long-term. In the future, once Tesla enters a phase of slower, more predictable growth, it will likely make sense to return to the public markets.
Here’s what I envision being private would mean for all shareholders, including all of our employees.
First, I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or they can be bought out at $420 per share, which is a 20% premium over the stock price following our Q2 earnings call (which had already increased by 16%). My hope is for all shareholders to remain, but if they prefer to be bought out, then this would enable that to happen at a nice premium.
Second, my intention is for all Tesla employees to remain shareholders of the company, just as is the case at SpaceX. If we were to go private, employees would still be able to periodically sell their shares and exercise their options. This would enable you to still share in the growing value of the company that you have all worked so hard to build over time.
Third, the intention is not to merge SpaceX and Tesla. They would continue to have separate ownership and governance structures. However, the structure envisioned for Tesla is similar in many ways to the SpaceX structure: external shareholders and employee shareholders have an opportunity to sell or buy approximately every six months.
Finally, this has nothing to do with accumulating control for myself. I own about 20% of the company now, and I don’t envision that being substantially different after any deal is completed.
Basically, I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible.
This proposal to go private would ultimately be finalized through a vote of our shareholders. If the process ends the way I expect it will, a private Tesla would ultimately be an enormous opportunity for all of us. Either way, the future is very bright and we’ll keep fighting to achieve our mission.
Thanks,
Elon
Since Musk appears to have engaged in a mass layoff to reduce costs and improve the bottom line, going private may have a positive outcome for Tesla's employees.
Change is coming. There will always be a tomorrow, no matter how much you may try to ignore it. There are no guarantees in life or promises for a bright future. Just because something bad hasn't happened yet, doesn't mean it won't. It can happen to anyone, anytime, anywhere. No one is guaranteed to wake up tomorrow and still have a job by evening. Are you now wondering, Am I Next?