Elon Musk just announed that he's going to take Tesla private and he's going to do so at 420 a share which would give Tesla a
market worth of 80 billion dollars. Tesla has a current share price of 353. So 420 is a premium over the current market price
of 67 dollars a share.
420 is also code for marijuana. Whereas most other CEOs wouldn't seem to be pot smokers, Elon seems a dead ringer for one.
His bro-tastic, zany genius, glorified gnome attitude seems straight out of a stoner movie. Because 420 is the universal number
indicating it’s time to smoke some weed, some laughed off Musk’s tweet as just one of his weird jokes. Many however, took
him very seriously.
Elon's tweet set Tesla's stock up dramatically for the day. That morning the stock had been going lower. When
Elon's tweet went out the stock changed course. Tesla's stock price went so crazy, the NYSE halted the trading of it for an hour before allowing
trading to continue. Tesla’s stock, which rose 11% on the day of the tweet from $342 to $379, has since dropped back to $353.
By influencing the market, Elon cost short sellers of Tesla's stock nearly a billion dollars that day.
Afterall, Tesla is the most shorted company in the US market by a margin of billions - and such large, extended positions have huge downside.
The SEC is now looking into the tweet to see if it was just a pipe dream or whether Elon actually has "funding secured" for
80 billion dollars worth of equity needed to buy out Tesla and take it private. If Elon lied about having funding secured, or
even was just joking about the whole thing while smoking weed, either way
in big trouble if his tweet wasn't true.
The regulation Musk may have broken is 14e-8 of the Securities Exchange Act of 1934, which prohibits publicly traded
companies from announcing plans to buy or sell securities if executives don’t intend to complete, don’t have
the means to complete, or are trying to manipulate the stock price.
Musk’s claim that he has secured funding if in fact he does not, could expose Musk and his company to lawsuits.
“He is claiming there is a specific source of the funding so that had better be true,” former SEC chairman Harvey Pitt told CNBC.
“He has also claimed there is a specific amount available for funding. That has to be true. Otherwise, even if it’s not manipulation
it would be fraud, so he’s got two potential areas of difficulty right there.”
With Musk's tweet, Tesla was plunged into unprecedented market territory. Never before has the CEO of a company so
massive and widely followed disclosed something so sensitive on a social-media platform like Twitter.
"Typically you'd halt the stock to make an announcement like this," Greg Sichenzia, a lawyer who advises
companies on securities law, told Business Insider by phone. "I know he gets legal advice, but it's unclear
whether he sought it before tweeting."
"When you announce the price, it certainly smells like market manipulation," he added. "If any part of it isn't true,
he could certainly be facing legal liability. It's surprising that the CEO of a company would announce news like that."
Even if it comes out that Musk had a fully funded deal in place at $400 per share, rather than $420,
that could still be construed as materially misleading information.
Marketwatch currently lists Telsa’s market cap at a little over $58 billion. Factoring in $8.8 billion in debt,
Musk’s target price to go private would value the company at around $80 billion.
Bloomberg reports that if Musk managed to scrape together the cash to go private,
it would be the largest leveraged buyout in history.
So far, no Wall Street institution has claimed any knowledge of negotiations to raise any of the $80bn it would cost to take the company private.
Musk could have raised the money from a sovereign wealth fund, wealthy individuals or a private equity fund.
Potentially, Saudi Arabia could fund the entire thing with their soveriegn wealth fund though it would cost them 1/3 of
everything they have which seems too steep a price for even the rich Saudis.
Elon's suggesting this is where his money is coming from though. According to CNBC, Musk spoke with Saudi Arabia's Public Investment
Fund about backing Tesla's transition to becoming a private company, citing one source close to the matter.
If Elon's tweet wasn't true, then he just committed securities fraud resulting in the loss of 900 million dollars to short sellers
of Tesla. He lied in order to screw them. And then he as well as Tesla would be on the hook for 900 million dollars of
damages (+ added attorney fees etc).
Major stock announcements on twitter are a new thing that the SEC is just wrapping it's head around. Up until
this point the SEC has followed a very evil illuminati rule that's set up to allow illuminati business people to fluff their stocks just like Elon did
by talking about their companies on social media.
Reed-Hastings decision allowed companies to use social media outlets like Facebook and Twitter to announce key information in
compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will
be used to disseminate such information.
First of all the part about alerting investors about which social media is being used is ridiculous and impractical. Are companies
supposed to keep up with all the social media platforms? Are they supposed to pick an official media platform and announce it
to investors in their prospectus? What if people on different platforms say different things about the same company - say the
CEO vs the CFO??? The standard is dumb, impractical and hurts investors.
Social media should not be used to make company announcements. In terms of pre-internet technology, social media posts
would be equivalent to printing brochures about a stock and passing them out on the street. That is in fact something that
people used to do before the SEC banned it.
Twitter is not the right medium for a securities disclosure since the platform's 280-character limit prevents someone from disclosing
enough information relevant to investors - including the structure of a deal, its tax impact, or the amount of debt it would require.
The SEC should ban serious announcements related to a business on social media.
They aren't doing so because the illuminati likes being able to manipulate stocks. Since this is new social media, they think
they can get away with it. People don't realize that social media is just like an electronic printing press. The same principles
Elon's tweet came following an announcement earlier the same day that Tesla had raised 3 billion in equity financing from
Saudi Arabia. Elon had just weeks ago said that Tesla didn't need any more money after they've burned through tens of billions.
Tesla (at a market cap, or valuation, of $64bn), a carmaker just 15 years old, is valued far more highly than Ford ($40bn),
Nissan ($38bn), and Fiat-Chrysler ($26bn).
This is more impressive still given that the latter three companies all had sales up to around 10 times’ higher than Tesla’s and each
made billions in profit – while Tesla lost nearly $2bn. Investors aren’t valuing Tesla for what it’s achieving today, but rather for their high,
high hopes in what it will do in the future.
That relies on making a success of Model 3, and producing cars quickly and reliably enough to satisfy the market – and to stay ahead
of its much bigger rivals, who are catching up quickly in the electric car market
as TESLA's tax credits are expiring.
Tesla is struggling to hit its production targets, and having quality concerns in the scrabble to hit them. It is struggling with the aftermath of a takeover
of SolarCity now regarded as ill-advised. And critically, it’s burning through around $1bn in cash every quarter,
against a debt pile already in excess of $11bn.
Sensible investors must be worried at their CEO’s increasingly erratic behaviour, and apparent lack of concentration in his core project.
Over the past few years, Musk has launched an acclaimed space company, SpaceX, which plans to send humans to Mars.
He has publicly drawn blueprints for a wildly impractical and expensive “hyperloop” transit system, then given them away.
He proposed a series of underground platforms to shuttle cars, to beat traffic, launching the Boring Company” to lay the groundwork –
only to go on and use it to sell a limited-edition range of 20,000 flamethrowers to the general public. He suggested fixing fake news
by creating a system to rank outlets (which would be immediately gamed by trolls) called Pravda. And then he created a totally useless
“submarine” to “help” rescue boys trapped in a cave in Thailand, and then baselessly called one of the actual rescuers a “pedo”
when he criticised Musk’s intervention.
These are not the actions of a man relentlessly focused on fixing production and financial issues in the core company he leads, and in
which investors place their hope.
Elon seems tired of explaining his business model or position. He would rather take TESLA private and not have to explain his failures.
Musk has on multiple occasions said that Tesla will become profitable by the end of this year and he won't need to raise additional funds,
despite Tesla's increased cash-burn rate in recent quarters. Why do a 180 in strategy if your company is about to be profitable? If what Elon
is saying is true about profitability, why go private now?
Raising 3 billion from the Saudis gave them a strong interest in Tesla. It seems that Elon would rather have the Saudis
to answer to than stock holders or market analysts. If he uses the Saudi's to finance the entire purchase of Tesla to take
it private then Elon will be completely owned by the Saudis.
I would say that is an incredibly "boneheaded" move on Elon's part. Stock investors don't murder you, Saudi Royals do.
We're talking about a country that just performed a cruxifiction and regularily beheads people and cuts their hands off for
stealing. I don't think the Saudis will look upon Elon kindly if he doesn't turn Tesla around.
Elon is a conman who so far has only been successful at taking billions from other people and then spending it on his toys. TESLA has never
been profitable. The Boring company is a joke that makes Flame Throwers. Space X rockets blow up all the time.
Elon doesn't understand how to make cars in a mass way. He can't ramp up Model 3s and without a mass market
vehicle there is no way TESLA will ever be profitable. Eventually TESLA will go bankrupt - maybe within this year. It depends on how
many free billions investors are willing to give Elon. Basically, no one else besides Saudi Arabia are willing to do that.
Why is Elon so intent on taking Tesla private? Well of course it's because if the company is private he doesn't have to talk about
Tesla's production problems or any other problems. If Tesla is private he doesn't have to release any numbers or take calls from
the investor analysts he disparaged on his last call as "idiots." Elon doesn't want accountability in a transparent way, because then
everyone is going to realize more and more that he's a massive fraud.