Photo Credit: Tesla
Having immersed myself in Tesla's mainstream media-Twitter-Reddit-Owners Group news and analysis sinkhole, the only thing I can say with certainty about Tesla's privatization effort is that no one has an accurate idea of what's truly happening.
Here's a Tesla privatization timeline, a quick guide to the Tesla board, and some mean tweets. The situation remains fluid and more news is sure to hit this week.
Week of July 30
Musk ostensibly informs Tesla's board of directors of the idea of going private, and that he has "funding secured."
July 31
Musk met with the the Saudi Arabian sovereign wealth fund on July 31, as revealed in today's blog post from the CEO.
“Going back almost two years, the Saudi Arabian sovereign wealth fund has approached me multiple times about taking Tesla private," Musk writes. "Recently, after the Saudi fund bought almost 5 percent of Tesla stock through the public markets, they reached out to ask for another meeting. That meeting took place on July 31st.”
He added that there was no collusion and only adoptions were discussed. Musk wrote that he is still in talks with the Saudis and is having "discussions with a number of other investors."
He used the term "funding secured" because when he left the July 31st meeting, there was "no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving."
Musk writes that he made the announcement on Twitter (see below) because "it wouldn’t be right to share information about going private with just our largest investors without sharing the same information with all investors at the same time." The SEC FAQ on when to file an 8-K form is here.
He added that he is speaking for himself as "a potential bidder for Tesla" in what would be not be "a standard leveraged buyout structure" for taking a company private, claiming that most of the capital requirements would come in the form of equity not debt. He did not provide details but did say, "I do not think it would be wise to burden Tesla with significantly increased debt."
Stay tuned. The board, minus people named Musk, meets this week.
Tuesday, August 7
Musk lets the world know via Twitter that he's looking to shift his $60 billion market cap EV pioneer from a public to private company. The mysterious tweet sent out that Tuesday morning read: "Am considering taking Tesla private at $420. Funding secured."
This would be the biggest leveraged buyout in history — with a value of about $82 billion counting debt. Musk would have to come up with $66 billion, according to Bloomberg. Musk said that the deal was contingent on a shareholder vote but added that "investor support is confirmed."
The Financial Times reports that Saudi Arabian prince Mohammed bin Salman's Public Investment Fund had bought a stake of up to 5 percent (worth about $2 billion) in Tesla with shares purchased on the secondary market.
After sending his tweet to the world, Musk then let his employees know what was going on in a letter titled, "Taking Tesla Private."
Wednesday, August 8
The San Francisco office of the U.S. Securities and Exchange Commission (SEC) reached out to Tesla about Musk's Twitter claim that funding was "secured," according to The Wall Street Journal. The SEC is also looking into why Musk's claim about potentially taking Tesla private was made on Twitter instead of in an 8-K regulatory document. This is not Tesla's first brush with the SEC — previous claims regarding sales and manufacturing targets triggered the agency's interest, as well.
Six of Tesla's eight board members (Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice and James Murdoch) released a very brief statement: "Last week, Elon opened a discussion with the board about taking the company private. This included discussion as to how being private could better serve Tesla’s long-term interests, and also addressed the funding for this to occur. The board has met several times over the last week and is taking the appropriate next steps to evaluate this."
"That seems like a very carefully phrased statement," said Adam Pritchard, professor of securities law at the University of Michigan, as quoted in The Sydney Morning Herald. "They've added some credibility" so that Musk "doesn't look like a nut job."
According to sources cited by CNBC, the board is "likely" to tell Musk to recuse himself and retain his own team of advisers as the firm sets out to assess the take-private proposal. A team of independent Tesla directors will presumably review the buyout terms. The move by the board to ask Musk to recuse himself from the process and to hire his own advisers is not unusual in a go-private situation when the CEO owns a substantial stake.
Wall Street banks are "salivating" over the potential mega-deal and mega-fees to be generated by a Tesla privatization — whether by traditional leveraged buyout or through some other process, according to the The New York Times.
August 9
The SEC is "intensifying" its inquiry into Tesla, according to Bloomberg.
Saudi Arabia's Public Investment Fund has shown no indication it is interested in financing Musk's proposed deal, according to Reuters.
Moody's Investors Service said that Tesla's note to employees about taking the firm private is "credit negative," but does not impact the ratings. Moody's notes that the firm's liquidity position "remains tight" with cash and marketable securities at $2.2 billion, along with $1.2 billion in looming debt and the prospect of increased Chinese export tariffs. Moody's expects Tesla will need to access capital markets to pay its debt and fund its operations.
August 10
Tesla was sued (twice) by investors claiming the go-private proposal was "a scheme to squeeze short-sellers."
August 12
According to Bloomberg, the Saudis are back to considering an investment in a private Tesla.
This coming week
The Tesla board will meet with financial advisers to launch a process to assess Elon Musk's take-private plan, while recusing him from the process.
"The board has to assert themselves"
It must be a blast to serve on Tesla's board of directors. You get ringside seats at an epic corporate drama. You get to hang out and work with Elon Musk once a month, go to cool parties, and get sucked into an investigation with the SEC.
SEC investigations are why there's director and officer insurance.
The Tesla board is in the spotlight now. Their fiduciary responsibility is to the shareholders, not to their networks nor to outward appearances, but to providing unassailable corporate governance and preserving corporate value. In a time of eroding institutional standards, can this board, along with the SEC, get it right? Here are the board members.
Kimbal Musk, a restaurateur and Elon Musk's brother, is "the director most clearly lacking independence," according toThe Sydney Morning Herald, which quoted a pension fund representative as saying, "Having your brother on the board, it's a red flag."
Antonio Gracias founded Valor Equity Partners and has been a Tesla director since early days. He backed Musk's efforts at PayPal and SolarCity. Rebecca Greenfield of the Sydney paper, again: "Gracias serves as lead independent director but isn't classified as independent by either of the major proxy advisory firms, Institutional Shareholder Services or Glass Lewis."
Brad Buss was CFO at SolarCity before Tesla acquired/rescued the solar installer. In a 2014 SolarCity earnings call, he said, "Buckle up, it's going to be an amazing ride." He was right, but not in the way he intended. Buss does not meet ISS or Glass Lewis' criteria as an independent director, according to Greenfield.
Robyn Denholm has been a Tesla director since 2014. Denholm has served as COO of Telstra, Australia's largest telecommunications firm, since 2017, and was just promoted to CFO. Prior to Telstra, Denholm was executive VP and chief financial and operations officer at Juniper Networks.
Ira Ehrenpreis is a venture investor at DBL Partners, as well as an investor in SpaceX. GTM readers will recognize Ehrenpreis as a leader in the Silicon Valley cleantech investment hub. While at Technology Partners, Ehrenpreis invested in Tesla, as well as Accelergy, Abound Solar, Alta Devices, Akros Silicon, G2X Energy, Imergy, Imperium Renewables, Kaiam, Ogin, PolyFuel, PowerGenix, Sensicore and Beamreach. In other words, Tesla.
Steve Jurvetson is a co-founder and former general partner of venture firm DFJ. Prior to taking leave from his board duties amidst strongly denied accusations of personal misconduct, Jurvetson was part of Synthetic Genomics, Planet Labs, Nervana Systems, Flux, D-Wave and SpaceX. He made his VC bones as an investor in Hotmail.
Recently added directors James Murdoch, Rupert Murdoch's son, is boss of 21st Century Fox. Linda Johnson Rice helms the Johnson Publishing Company. CEO Elon Musk, with his approximately 20 percent ownership stake, rounds out the board.
Betsy Atkins has served on 28 different corporate boards including Volvo. She called Musk a "disaster" as the CEO of a public company, in an interview with Bloomberg, saying, "The board has to assert themselves." She cautioned, "The board is responsible for the CEO and they are the oversight mechanism for the shareholders."
A few mean tweets
ellec_uk: We're in a Schrodinger's funding secured situation. Funding is both simultaneously secured and totally made up according to $TSLA feed.
TwainsMustache: Musk is not playing chess or even more laughably 3D chess...he is playing a game of hot potato charades.
b graham disciple: Just don't see any realistic scenario for Musk to survive this and remain CEO of Tesla. Large public cos. can't have a CEO that commits securities fraud.
mcm_ct: The result of any effort by @elonmusk to implement a private holding company that would hold thousands/millions of investors would be completely impractical, prohibitively expensive/complex & it would NEVER be allowed by regulators as it would get mutual fund/pool regulation.
Here's a countdown on the time since Musk's tweet without proof of funding.
Joel Levington, a Bloomberg analyst, notes: “Funding $50 billion plus for a negative free cash flow business would be difficult, if not extraordinary."
This is a test
This latest Tesla incident is a test of Musk's veracity, of Tesla's viability as a going concern, of the integrity of Tesla's board, and of the integrity of the regulators at the SEC.
In a CNBC interview with Harvey Pitt, the former SEC chairman saw the potential for fraud in Musk's reference to a specific amount and a specific source. "Is there any basis for what he's said?" asked the former regulator.
Betting against Musk has been a bad bet so far, but it looks like Musk might have crossed the line this time. Or perhaps he's found $70 billion to be invested in a wildly popular EV pioneer that happens to be losing a lot of money.
We'll know more this week.
This story was updated with information from Elon Musk's new blog post.