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
Few Clouds
91° wxIcon
Hi: 91° Lo: 71°
Feels Like: 98°
Robinson
Broken Clouds
87° wxIcon
Hi: 89° Lo: 69°
Feels Like: 95°
Indianapolis
Few Clouds
89° wxIcon
Hi: 89° Lo: 72°
Feels Like: 95°
Rockville
Scattered Clouds
87° wxIcon
Hi: 90° Lo: 70°
Feels Like: 93°
Casey
Scattered Clouds
88° wxIcon
Hi: 90° Lo: 71°
Feels Like: 95°
Brazil
Few Clouds
91° wxIcon
Hi: 89° Lo: 71°
Feels Like: 98°
Marshall
Few Clouds
91° wxIcon
Hi: 90° Lo: 71°
Feels Like: 98°
Hot and humid!
WTHI Planner
WTHI Temps
WTHI Radar

Latest Video

Image

Monday Afternoon Weather

Image

Monday Morning Weather Update

Image

Coronavirus coverage, what we're following for this week ahead

Image

Danger inside hot cars

Image

More stray pets reported over holiday weekend

Image

Brazil Concert Band returns to the stage

Image

4-H auction goes virtual

Image

Volunteers needed for food program

Image

Restaurants welcome in customers over holiday weekend

Image

Sunday Morning Forecast Update

WTHI Events

 

Illinois Coronavirus Cases

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

Confirmed Cases: 147251

Reported Deaths: 7020
CountyConfirmedDeaths
Cook925324627
Lake9954423
DuPage9311475
Kane7856275
Will6923320
Winnebago309196
McHenry211597
St. Clair2017137
Kankakee130765
Madison103669
Rock Island103329
Kendall99621
Champaign94813
Boone60821
DeKalb57819
Peoria55628
Sangamon45032
Jackson33919
Randolph2887
McLean27713
Stephenson2765
Ogle2714
Clinton24217
Macon23522
LaSalle22617
Union19519
Whiteside19515
Grundy1735
Coles17217
Iroquois1625
Tazewell1508
Warren1430
Knox1400
Cass1367
Williamson1324
Monroe13013
Morgan1303
Adams1221
Jefferson10717
McDonough10215
Lee1012
Henry961
Pulaski790
Vermilion782
Marion690
Macoupin583
Perry571
Douglas540
Unassigned540
Livingston522
Montgomery481
Jasper477
Jo Daviess461
Christian454
Ford381
Jersey351
Woodford352
Bureau302
Franklin290
Menard240
Fayette233
Mercer230
Wabash230
Alexander220
Mason220
Carroll212
Washington210
Johnson200
Piatt200
Hancock191
Moultrie190
Shelby191
Crawford180
Effingham181
Logan180
Bond161
Cumberland160
Fulton160
Clark150
Massac150
Wayne141
Schuyler130
De Witt120
Brown100
Edgar100
Marshall100
Greene90
Saline90
Henderson80
White80
Lawrence70
Hamilton60
Richland40
Stark40
Pike30
Clay20
Edwards20
Gallatin20
Calhoun10
Hardin10
Pope10
Putnam10
Scott10
Out of IL00

Indiana Coronavirus Cases

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

Confirmed Cases: 48201

Reported Deaths: 2693
CountyConfirmedDeaths
Marion11624683
Lake5146242
Elkhart328546
Allen2762129
St. Joseph194366
Cass16389
Hamilton1552101
Hendricks1403100
Johnson1278118
Porter72837
Tippecanoe7158
Madison65864
Clark65144
Bartholomew58544
Howard57557
LaPorte57326
Kosciusko5464
Vanderburgh5226
Marshall4924
Noble47828
Jackson4703
LaGrange4708
Hancock44835
Boone44243
Delaware44250
Shelby42525
Floyd37944
Morgan32931
Grant29426
Monroe29428
Montgomery29420
Clinton2892
Dubois2736
Henry26315
White26310
Decatur25032
Lawrence24425
Dearborn23623
Vigo2348
Warrick21429
Harrison21322
Unassigned193193
Greene18832
Miami1822
Jennings17611
Putnam1698
DeKalb1624
Scott1607
Daviess14317
Wayne1386
Orange13623
Steuben1292
Perry1279
Franklin1248
Jasper1212
Ripley1167
Wabash1122
Carroll1102
Fayette997
Newton9810
Starke933
Whitley925
Huntington812
Gibson802
Randolph794
Jefferson722
Wells721
Fulton701
Jay680
Washington671
Knox640
Pulaski641
Clay604
Rush583
Adams501
Benton480
Owen471
Sullivan441
Brown391
Posey390
Spencer381
Blackford372
Crawford320
Tipton321
Fountain312
Switzerland270
Parke230
Martin220
Ohio170
Vermillion140
Warren141
Union130
Pike110