SOLVING THE TESLA PUZZLE
Good morning, Term Sheet readers.
BREAKING: Right as I was about to press “send” on this newsletter, I saw this: Elon Musk published an update on taking Tesla private.
In a Q&A style blog post, Musk answers questions such as “Why did I make a public announcement” and “why did I say ‘funding secured.’ In regards to the latter, he explains that Saudi Arabia’s Public Investment Fund (PIF) had approached him “multiple times about taking Tesla private” since the beginning of 2017. The two groups reportedly held several meetings over the next year to try to move forward with a going private transaction.
Musk adds, “Obviously, the Saudi sovereign fund has more than enough capital needed to execute on such a transaction.”
After the Saudi fund bought almost 5% of Tesla stock through the public markets, they reportedly reached out about another meeting. That meeting took place on July 31st, Musk writes.
After meeting with the managing director of the fund, Musk was led to believe that “no other decision makers were needed and that they were eager to proceed.”
“I left the July 31st meeting with 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,” he said. “This is why I referred to ‘funding secured’ in the August 7th announcement.
So this begs the question: Was funding actually secured?…Or did Musk just come away from the meeting with the belief/hope/idea that the PIF would invest without funding actually being secured? Not sure how the SEC will feel about all that.
Musk explains that the PIF’s managing director “has expressed support for proceeding subject to financial and other due diligence.” The director has also reportedly asked for additional details on how the company would be taken private, including any required percentages and any regulatory requirements.
And then it gets even murkier. Musk says he’s also having discussions with a number of other investors….Like someone aptly said on Twitter, “It’s not not the Saudis, basically.”
Musk also said he’s been reaching out to Tesla’s largest shareholders and that most of the capital required to take the company private will be funded by equity, rather than debt.
“The $420 buyout price would only be used for Tesla shareholders who do not remain with our company if it is private,” he wrote in the blog post. “My best estimate right now is that approximately two-thirds of shares owned by all current investors would roll over into a private Tesla.”
Over the last few weeks, several Term Sheet readers have e-mailed me with thoughts on what’s going on. I got everything from “Impossible to have lined up the financing to take this dog private!” to “End of the day, Musk is once again letting his ego and mouth take over and at some point it will cost him dearly — it is just a matter of time.”
But after all, it’s Elon Musk, we’re talking about. And with Elon Musk, it feels like everything is on the table at all times.
DEAL BUSTS: There has already been $540 billion in broken deals so far this year. Increased government scrutiny and investor activism are behind rise in failed blockbuster takeovers. Among the casualties are chipmaker Broadcom’s $142 billion hostile bid for rival Qualcomm, which was blocked by Donald Trump on national security grounds, and Qualcomm’s $44 billionn pursuit of NXP Semiconductors, which China refused to approve. Read more.
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