Musk's LBO Plan Triggers Furious Controversy, And One Burning Question
Update: almost one day after the Musk tweet, Tesla Board members Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice, and James Murdoch, finally issued a statement:....MUCH MORE
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.It was not immediately clear just what the board means when it says it will "address the funding" for the deal to occur if, as Musk said previously, it was already secured.
* * *No company has the ability to twist a wedge of discord as deeply and mercilessly between its fanatical fan base and its rabid skeptics and shorts as Tesla, and one day after Elon Musk's shocking, bizarre Tesla "going private" declaration on twitter, coupled with a vow that "funding is secured", the disagreement has, predictably, never been greater.
On one hand, there are those who say the deal can happen, and not only that but it would eventually take place at a higher price than the stated $420/share, a valuation of $82 billion which would make it the biggest LBO in history, far greater than the ill-fated (and subsequently bankrupt) TXU which marked the peak of the last financial bubble. Keep in mind TXU had gobs of positive free cash flow when it was LBOed over a decade ago; Tesla has lost money on an operating basis every year since going public and has been burning through billions of dollars.
This morning, Baird analyst, and Tesla cheerleader, Ben Kallo said that Tesla holders would likely push for a go-private price above the $420 per share that Musk suggested, and the stock price may top that mark as investors demand a higher premium and shorts cover positions. To be sure, with the stock trading over $50 below the LBO price, the market clearly sees "problems" with the deal as it is structure.
As Kallo further notes, Musk’s comment that "funding has been secured" for the deal indicates that the company has access to multiple external capital sources (even if Musk has inexplicably refused to discuss these, more on that below). Kallo also claims that Tesla’s decision not to issue shares for the reported 3%-5% stake taken by Saudi Arabia’s Public Investment Fund underscores company’s confidence in its ability to generate capital internally.
Loup Ventures analyst and managing partner Gene Munster, echoed Kallo's optimism, saying that taking Tesla private "makes a ton of sense" from Musk’s perspective although even Munster - another of Tesla’s biggest bulls - assigns a small likelihood that the deal goes through. "Musk does not want to run a public company,” Munster said. “Our guess is there is a 1 in 3 chance he can actually pull this off."
Then there are the skeptics....
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