Tesla board weighs CEO's buyout bid as questions swirl

Jermaine Castillo
August 9, 2018

Elon Musk announced the bombshell move Tuesday on Twitter, writing that he had secured funding to buy Tesla Inc.'s shares at $420 each.

Tesla's stock surged 11 per cent on Tuesday, collectively costing short sellers more than US$1b, by some estimates.

JPMorgan analyst Ryan Brinkman said he gave only a 50 per cent probability that Tesla would go private.

Scepticism about the legitimacy of Musk's proposed deal surfaced nearly immediately after Musk dropped the bombshell on his Twitter account a few hours after the stock market opened on Tuesday.

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Musk didn't expand on what he meant by the tweet on Twitter but he did send out an internal memo to employees to explain the rationale behind the tweet highlighting three main reasons behind his intentions.

The US Securities and Exchange Commission has made inquiries into Tesla in the wake of Musk's tweets, The Wall Street Journal reports.

As Tesla's board of directors rallied Wednesday behind chief Elon Musk's extraordinary push to take the all-electric automaker private, a growing contingent of investors, analysts and former regulators voiced their doubts that the deal would ever take off. Many initially thought it was Elon Musk's attempt at a bad joke about marijuana, because "420" has always been associated with pot. Musk tweeted that he was considering taking the electric vehicle giant private at $420, which implies a 12% premium from where TSLA is trading.

SoftBank is now not interested in a deal for Tesla after earlier this year taking a stake in General Motors Co's self-driving unit, Cruise, Reuters reported earlier on Wednesday. The value of his shares at that price would total $72 billion, short of the $100 billion performance bar it must cross for him to be able to exercise his $2.6 billion stock-option grant, Bloomberg noted. But Musk probably doesn't need that much financing because he owns a roughly 20 per cent stake in the company and he is also creating a special fund that will allow existing shareholders to retain their stakes in Tesla in the private market, if they want.

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If we turn to the Street in general, we can see that Wall Street has a neutral point of view on Tesla, with TipRanks analytics exhibiting TSLA as a Hold. In the message, Musk said the move was "the best path forward" and would protect Tesla from making decisions based on market pressure rather than its long-term best interests.

There still are near-term execution risks around ramping up Model 3 production and the ability to generate cash, Jonas believes.

Other board members mentioned in the statement included Robyn Denholm, Ira Ehrenpreis, Antonio Gracias and Linda Johnson Rice.

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