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Behind Musk's tweet: Toying with taking Tesla private

Illustration: Sarah Grillo/Axios

Elon Musk yesterday sent the tweet heard round the Street:

Bottom line: Only Elon Musk knows the full story here, and he isn't being very transparent with his shareholders, employees or us in the media. That's why shares today will open below $400, let alone below $420. The skepticism is on him, and will persist until he answers some pretty basic questions.

Lots to break down here:

"Am considering taking Tesla private at $420."

It's not really surprising that Musk would want to take Tesla private, given how prickly he can get when bank analysts question the company's performance. And there's always the standby argument about how long-term, strategic planning is easier at a private company than at a public one.

  • As for the $420 per share — that tracks fairly close to the market-standard 20% premium, even though it also tracks exactly to cannabis market slang.

"Funding secured."

This is where it gets really interesting. For starters, Musk doesn't identify the funders — neither in his tweet, nor in a follow-up blog post.

And multiple sources tell me it's none of the usual suspects on the debt side (i.e., big Wall Street banks). Nor many on the equity side, such as big strategics (not Apple or Uber), private equity (not KKR, Mithril, Silver Lake, TPG, etc.) nor deeper financial pockets (not SoftBank or Mubadala).

  • One big wildcard remains the Saudis, particularly since Musk's tweet came shortly after an FT report that a Saudi fund had acquired a $2 billion position in Tesla, and because the Saudis have major interest in solar energy.

No other reporter so far has managed to find any of Musk's financing partners either. Or perhaps I should say his supposed financing partners. Because...

Regulatory ruin

If Musk didn't actually have enough funding secured when he tweeted, then the SEC should come down on him like a bag of batteries. And the shorts will create a full employment act for plaintiffs' lawyers.

Companies are allowed to disclose material information via social media, but disclosing false or misleading information remains off-limits. The first part of Musk's tweet was aspirational, but the second part was factual.

Security concerns

If Musk is getting financing from a non-U.S. actor like the Saudis, expect any deal to undergo a CFIUS review. Not so much because Tesla makes connected cars or residential solar panels, but more because it's involved in utility-scale energy efforts. I'd also think the current trade tensions would eliminate any Chinese tech company from contention.

Precedent

There is none for buyout-by-tweet, but lots of folks have been comparing Musk's efforts to those of Michael Dell in 2013. But there are a lot of big differences:

  • Dell didn't publicly ponder an acquisition. He made a formal, detailed offer that named private equity and lending partners. And this led to the company forming a special committee, which hasn't happened yet at Tesla (although members of the board just said that Musk first broached the topic with them last week).
  • Dell didn't push himself to meet his quarterly number right before the takeover attempt, thus driving up the price.
  • Dell didn't offer to let existing shareholders roll over their equity (more on that in a minute), nor was there widespread belief that his company would need a subsequent cash infusion.

Structure

At $420 per share, Tesla's equity would be valued at $71.6 billion and its overall enterprise value would be around $85 billion (including debt). Musk currently holds a 19.87% equity stake, which means he'd theoretically need around $57 billion in financing. But Musk also wants to let existing shareholders roll over —maybe into a Fidelity-run special purpose vehicle, like exits has for the never-public SpaceX — so his ultimate needs could be much less.

  • It's worth noting that Musk reportedly didn't gauge major shareholder interest prior to his tweet, so the SEC should hold him to the full $57 billion when judging "funding secured."

Go deeper with today's Axios Pro Rata podcast.