Is Elon Musk taking Tesla private?

Shares were halted Tuesday after a surprise announcement from Tesla's CEO Elon Musk. Can this be true?

Posted: Aug 8, 2018 9:30 PM
Updated: Aug 8, 2018 9:52 PM

Elon Musk shocked Wall Street and Silicon Valley when he tweeted Tuesday that he wanted to take Tesla private.

But can Musk really strike a deal? And what would it mean to Tesla shareholders if he succeeds?

Musk said in a series of tweets that he had the funding and investor support.

"Only reason why this is not certain is that it's contingent on a shareholder vote," Musk said in one tweet.

But it may not be that simple.

How would Tesla go private?

It would have to buy back all of its public shares.

Musk proposed an offer of $420 per share for Tesla, or about 12% higher than where Tesla's stock was trading late Wednesday morning. That would value the company at more than $70 billion.

Musk is Tesla's biggest shareholder, with a nearly 20% stake.

It's unclear who Musk secured funding from. The Financial Times reported that he met with Saudi Investors, but the company has not commented. Typically investment banks provide the huge amount of capital to take a company private. But that comes with substantial risk -- and adds a huge amount of debt to a company's balance sheet.

The next three largest shareholders -- investment firms T. Rowe Price, Fidelity and Baillie Gifford -- have a combined 25% stake. None of those firms would comment about Musk's proposal, but it's not clear that every investor would be on board. If those shareholders vote against the proposal the company would not go private.

Musk also said that shareholders would have the option of selling their stakes or retaining their shares for partial ownership of a privately held Tesla.

So that's led to confusion about how "private" Tesla would be if it kept some of its existing investors.

Tesla's board said in a statement Wednesday that Musk talked to board members last week about why going private would make sense and how a deal could be funded. The board said it is now taking the "appropriate next steps" to evaluate the proposal.

Will investors stick with a private Tesla?

One Tesla shareholder said he thought a deal to take Tesla private was doable.

Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, which owns 38,000 shares of Tesla, told CNNMoney he would hang on to his investment even if Tesla went private because he believes in its growth potential.

Gerber noted that Musk's startup SpaceX is private, and investors -- including mutual fund Fidelity -- are given the chance every few months to cash out.

"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," Musk said in an email to employees Tuesday that was published on Tesla's corporate blog.

Will going private solve Tesla's problems?

Not necessarily.

The company has $2.2 billion in cash and $9.5 billion in debt.

If Tesla adds to its debt load to finance a buyout, rising interest rates could make it more expensive for Tesla to make payments.

"The company can't afford more debt," Gerber said.

Tesla could raise funds by issuing more stock, but that would dilute the company even more and make it harder to go private.

The company also remains unprofitable and going private wouldn't change that.

It would just allow Musk to make more investments in the company without having to worry about short-term focused investors clamoring for profits sooner rather than later.

Is a deal smart given changes in tax law?

That's debatable. The new tax rules enacted by Congress last year could be bad news for Tesla.

The IRS now caps how much a company can deduct on interest payments for corporate debt. That's a key reason why Michael Dell decided to list shares of Dell Technologies on Wall Street again after taking the company private in 2013.

Nonetheless, Gerber said that he understands why Musk wants to take Tesla private.

So why does Musk still want to do this?

Musk seems tired of dealing with skeptical Wall Street analysts and short sellers who are trying to profit from declines in the stock.

One person on Twitter even mentioned Dell going private as a model for Tesla. A user named Evoto Rentals wrote "Been saying this all along. Just like Dell did. It saves a lot of headaches."

Musk responded to that tweet with a simple, "Yes."

If Tesla were private, short sellers would no longer have a way to make money from negative Tesla headlines. And Musk would not have to hold quarterly earnings calls and deal with questions from analysts that he finds tedious.

Musk would have a lot more freedom to invest even more in solar roofs, the Tesla Semi truck and any other new products without having to incur the wrath of investors and analysts who question the strategy.

Is $420 high enough of a price to take Tesla private?

Perhaps not. Other Tesla bulls have said in the past they have no interest in selling anytime soon.

Money manager Ron Baron told CNBC in May that "we're going to make 20 times our money because the opportunity is so enormous" for Tesla.

Baron's firm -- Baron Capital -- owns nearly 1.7 million shares of Tesla, the 13th largest stake. Baron declined to comment to CNNMoney when asked specifically about Musk's proposal to take Tesla private.

And Gerber said he personally would rather have Tesla remain public because he thinks the stock could go much higher than $420. But even he has a price at wihch he'd cash in.

"If Musk wants to go private at $570, I would sell my stock," he said. "I would be happy and buy a new house."

Terre Haute
Clear
64° wxIcon
Hi: 88° Lo: 46°
Feels Like: 64°
Robinson
Clear
60° wxIcon
Hi: 81° Lo: 45°
Feels Like: 60°
Indianapolis
Clear
63° wxIcon
Hi: 85° Lo: 49°
Feels Like: 63°
Rockville
Clear
64° wxIcon
Hi: 87° Lo: 45°
Feels Like: 64°
Casey
Clear
64° wxIcon
Hi: 79° Lo: 48°
Feels Like: 64°
Brazil
Clear
64° wxIcon
Hi: 86° Lo: 46°
Feels Like: 64°
Marshall
Clear
64° wxIcon
Hi: 80° Lo: 44°
Feels Like: 64°
Mostly clear, breezy, and warmer evening.
WTHI Planner
WTHI Temps
WTHI Radar

Latest Video

Image

Historical Marker Dedication in Wabash Valley

Image

Historical Marker Dedication

Image

Elizabeth Smart Story

Image

Sunday Evening: Mostly clear, breezy. Low: 61

Image

Cooper Neese Inaugural Basketball Camp

Image

Sunday: Sunny and warm, becoming breezy. High 80°

Image

Wabishiki Day

Image

The Great Relay

Image

Fairbanks Community Center

Image

Car Seat Safety

WTHI Events

 

Illinois Coronavirus Cases

(Widget updates once daily at 7 p.m. CT)

Cases: 1612129

Reported Deaths: 27216
CountyCasesDeaths
Cook61543610987
DuPage1042681360
Will876561092
Lake773641061
Kane66108852
Winnebago39170545
Madison38345578
St. Clair35140571
McHenry33177317
Peoria26076363
Champaign25967184
Sangamon24718273
McLean22003208
Tazewell19833326
Rock Island17919348
Kankakee16856235
Kendall15537107
Macon14565244
LaSalle14539278
Vermilion13343190
Adams12733148
DeKalb11729129
Williamson11528160
Whiteside7944176
Jackson774389
Boone762782
Coles7404113
Ogle718087
Grundy704582
Franklin693999
Clinton683798
Knox6715166
Marion6581138
Macoupin6525100
Henry625674
Effingham612882
Jefferson6116132
Livingston574196
Woodford556191
Stephenson549789
Randolph532197
Monroe510199
Christian496380
Fulton491570
Morgan488996
Logan478474
Montgomery470476
Lee460658
Bureau429188
Perry416671
Saline414064
Fayette403459
Iroquois396973
McDonough356656
Jersey324253
Shelby317343
Crawford307930
Douglas307636
Lawrence303431
Union297347
Wayne276057
White267730
Richland264455
Hancock258834
Pike258056
Clark253538
Cass252228
Bond244824
Clay242247
Edgar237545
Ford235956
Warren227161
Carroll226537
Johnson214925
Moultrie212931
Jo Daviess207226
Washington206627
Wabash202616
Greene200939
Mason200351
Massac200144
De Witt196830
Piatt192114
Mercer191234
Cumberland179825
Menard160812
Jasper153418
Marshall135621
Hamilton129821
Brown10228
Pulaski99211
Schuyler9748
Edwards96815
Stark77227
Gallatin7557
Scott6975
Alexander68111
Henderson66114
Calhoun6452
Hardin56414
Putnam5464
Pope4945
Unassigned1812432
Out of IL60

Indiana Coronavirus Cases

(Widget updates once daily at 8 p.m. ET)

Cases: 947918

Reported Deaths: 15377
CountyCasesDeaths
Marion1291181990
Lake635721103
Allen53899761
Hamilton44082449
St. Joseph42122590
Elkhart33803491
Vanderburgh30574449
Tippecanoe26915251
Johnson23727418
Hendricks22410342
Porter21832347
Clark17562231
Madison17492385
Vigo16302285
Monroe14545191
LaPorte14389239
Delaware14183222
Howard13971273
Kosciusko11498135
Hancock10935166
Warrick10737178
Bartholomew10635170
Floyd10514208
Wayne10077226
Grant9213204
Morgan8928160
Boone8463111
Dubois7791123
Dearborn769490
Henry7691133
Noble7466101
Marshall7409128
Cass7219118
Lawrence7026153
Shelby6647111
Jackson661386
Gibson6190107
Harrison609386
Huntington604495
Montgomery5853105
DeKalb581091
Knox5535104
Miami548888
Putnam543268
Clinton537465
Whitley529354
Steuben501768
Wabash488692
Jasper483861
Jefferson474492
Ripley457777
Adams446068
Daviess4231108
Scott409165
Clay394957
White393858
Greene393392
Wells389884
Decatur388797
Fayette378578
Posey362341
Jennings356056
Washington334747
LaGrange325175
Spencer321136
Fountain318455
Randolph317190
Sullivan309449
Owen287064
Starke282864
Fulton280454
Orange277859
Jay257038
Perry254152
Carroll245229
Franklin242838
Rush237030
Vermillion235050
Parke221420
Tipton212055
Pike211740
Blackford170534
Pulaski168551
Crawford147318
Newton145845
Benton143916
Brown135846
Martin130217
Switzerland126910
Warren115616
Union98511
Ohio80511
Unassigned0482