Aug 8, 2018

Axios Pro Rata

By Dan Primack
Dan Primack

Axios is coming to HBO this fall. Read all about it on our site or in the WSJ.

Top of the Morning

Illustration: Sarah Grillo/Axios

Elon Musk yesterday sent the tweet heard round the Street: "Am considering taking Tesla private at $420. Funding secured."

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, Silver Lake or TPG) 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."

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.

🎧 Listen up: On the new Pro Rata podcast we discuss the dangers of drones, in the context of Saturday's assassination attempt in Venezuela. Get via Apple or stream it at Axios.

The BFD

Advent International has at least a tentative agreement to sell pharmacy operator Genoa Health to UnitedHealth (NYSE: UNH), Axios has learned from a source familiar with the deal.

  • Why it's the BFD: Because if a health insurer in 2018 doesn't own a pharmacy, is it still a health insurer?
  • Details: Bloomberg yesterday reported that the sale price could be over $2 billion, but without naming UnitedHealth (instead it reported Walgreens as a possible suitors). No comment from any of the involved parties.
  • Bottom line: UnitedHealth is basically seeking to control a specialty channel by buying Genoa, whose 400 full-service pharmacies are located within community mental health centers.
Venture Capital Deals

Bytedance, owner of a popular Chinese news aggregation app, is seeking to raise around $3 billion at a valuation north of $75 billion, per Reuters. It most recently raised $2 billion at an $18 million pre-money valuation, led by General Atlantic. http://axios.link/g6Zl

Slack is raising around $400 million at a valuation “of at least $7 billion,” per TechCrunch. It most recently raised last fall, when SoftBank led a $250 million infusion at a $5.1 billion valuation. http://axios.link/lASG

Actifio, a Waltham, Mass.-based data management software company, raised $100 million at around a $1.3 billion valuation. Crestline Investors led, and was joined by return backers North Bridge Venture Partners, 83North, Advanced Technology Ventures, Heritage Group and Andreessen Horowitz. It previously raised over $350 million. http://axios.link/cdue

iQiyi Sports, the sports unit of Chinese online video platform iQiyi (Nasdaq: IQ), raised $73 million in funding led by IDG Capital. http://axios.link/5h2v

Dynamic Yield, an Israeli provider of personalized sales assistant software, raised $32 million in Series D funding led by Viola Growth. http://axios.link/2X53

RiskRecon, a Salt Lake City-based on-demand cyber-risk assessment platform, raised $25 million. Accel led, and was joined by Dell Technologies Capital, General Catalyst and F-Prime Capital. http://axios.link/ZTuq

Even Financial, a New York-based supply-side platform for online financial products, raised $18.8 million in Series A funding. GreatPoint Ventures led, and was joined by Goldman Sachs, Canaan Partners, F-Prime Capital and Lerer Hippeau. http://axios.link/Vg1r

Libra, a New York-based provider of middle and back office tech for the “crypto asset ecosystem,” raised $15 million in Series B funding. An undisclosed European family office led, and was joined by return backer Liberty City Ventures. http://axios.link/0jGX

🚑 AlayaCare, a Toronto-based provider of cloud software for home and community care providers, raised C$13.8 million in Series B funding. Inovia Capital led, and was joined by Chrysalis and return backer Fonds Innovexport. www.alayacare.com

RiskSense, a Sunnyvale, Calif.-based threat and vulnerability prioritization startup, raised $12 million in Series B funding. Spring Mountain Capital and NightDragon Security co-led, and were joined by UL Ventures, Paladin Capital Group, Sun Mountain Capital, EPIC Ventures and Jump Capital. www.risksense.com

🚑 Klara, a New York-based healthcare communication platform, raised $11.5 million in Series A funding. FirstMark Capital led, and was joined by Lerer Hippeau, Project A Ventures and Atlantic Labs. http://axios.link/XSAe

Hansel, an Indian mobile app development platform, raised $4 million in Series A funding. Vertex Ventures led, and was joined by return backers IDG Ventures India and Endiya Partners. http://axios.link/5dkq

Unmade, a UK-based fashion software startup, raised $4 million. Felix Capital led, and was joined by Connect Ventures, LocalGlobe, Carmen Busquets, Backed VC and C4 Ventures. www.umade.com

WhoCanFixMyCar, a British online car repair marketplace, raised £4 million from Shell Ventures, Active Partners and Venrex Investment Management. http://axios.link/EdbQ

Private Equity Deals

Golden Gate Capital acquired a majority stake in Aperio, a Sausalito, Calif.-based investment management firm. www.aperiogroup.com

Investcorp and PSP Investments have acquired minority stakes in Hollywood talent group United Talent Agency. Deadline reports the deal was around $200 million for a 40% stake. http://axios.link/Q0zI

Symplicity, an Arlington, Va.-based portfolio company of H.I.G. Capital, has acquired Contratanet, a network of job and internship portals in Brazil. www.symplicity.com

Tower Arch Capital has acquired Panoramic Doors, an Oceanside, Calif.-based maker of panel folding patio door systems. www.panoramicdoors.com

🚑 Vista Equity Partners acquired Alegeus, a Waltham, Mass.-based provider of healthcare payment solutions, from Lightyear Capital. www.alegeus.com

VLS Recovery, a Hockley, Texas-based portfolio company of Aurora Capital Partners, has acquired Beauchan, a Houston-based provider of railcar cleaning and product transfer services. www.vlsrs.com

Public Offerings

⛽ Rattler Midstream, a Midland, Texas-based midstream infrastructure company being spun out by Diamondback Energy (Nasdaq: FANG), filed for a $100 million IPO. It plans to trade on the Nasdaq (RTLR) with Credit Suisse as lead underwriter.

More M&A

⛽ GE Capital (NYSE: GE) agreed to sell its energy project finance debt unit to Starwood Property Trust (NYSE:STWD) for $2.56 billion. http://axios.link/TZMv

HKBN (HK: 1310), a Hong Kong-based provider of residential broadband, has agreed to buy local fixed-line operator WTT HK for around $1.34 billion (including debt). http://axios.link/gyG1

ORIX (Tokyo: 8591) has agreed to buy a 30% stake in the Avolon aircraft leasing business from an affiliate of HNA Group for $2.2 billion. http://axios.link/OA5K

👻 Prince Al-Waleed Talal of Saudi Arabia has acquired a 2.3% stake in Snap (NYSE: SNAP) for $250 million (36% discount to market value). http://axios.link/U77v

Fundraising

Welsh Carson Anderson & Stowe has raised over $2.8 billion for its thirteenth buyout fund, per SEC filings. Probitas Partners was placement agent. www.wcas.com

It's Personnel

Bessemer Venture Partners has promoted Anna Khan to vice president. www.bvp.com

Maveron promoted principal Anarghya Vardhana to partner. Prior to joining the VC firm in 2015, she was with Rothenberg Ventures. www.maveron.com

Final Numbers
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Data: Money.net; Chart: Lazaro Gamio/Axios
Dan Primack

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