On August 7, Tesla (NASDAQ: TSLA) CEO Elon Musk tweeted that he might take Tesla private. Musk noted that funding had been secured, and that shareholders could either sell at $420 or hold. Tesla's stock price rose 8% after this tweet.
It is unusual and controversial that such an announcement was made public through Twitter (NYSE: TWTR), though the SEC first began allowing companies to make such announcements via social media platforms. The SEC holds announcements made on Twitter or Facebook (NASDAQ: FB) to the same standard of factuality as any formal news release.
However, the SEC also advises that potentially market-moving information should be accompanied by a simultaneous release to the general public, not just to one's social media followers. The delay between Musk's tweet and Tesla's official announcement - which is still forthcoming, as Tesla's board is still considering the matter - could be of some interest to the SEC, according to Michael Liftik, a partner at the law firm Quinn Emanuel Urquhart & Sullivan. Indeed, multiple investors have already sued Musk, arguing that his tweet violated securities laws, and that Musk intended it mainly as retribution for short-sellers.
Going private would be enormously complicated for Tesla, which has struggled to turn an annual profit since it was founded in 2003. Tesla reported a $743 million loss for its second quarter, on revenue of $4 billion. Because of this, Tesla has attracted more short-sellers than any other publicly traded company, mostly because many investors doubt its ability to meet the high targets that Elon Musk has set. The company has lost $3 billion this year alone because of short-sellers.
This may be the primary reason to take Tesla private. In a statement, Musk stated that, "Being a public company and reporting earnings every three months puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long term." In a company memo published on Tesla's website containing a letter Musk sent to employees, Musk expressed his goal: "Basically, I'm trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees. This has nothing to do with accumulating control for myself. I own about 20 percent of the company now and don't envision that being substantially different after any deal is complete." Insiders own another 5%, and individual investors own about 12%. Institutions hold the remaining 62.2%.
Many investors are wondering where Elon Musk will get the funds for the buyout needed to go private. Musk's tweet followed a report that Saudi Arabia's Public Investment Fund recently completed the purchase of a nearly 5% stake in Tesla. Elon Musk would need to raise more than $50 billion in order to buy out other shareholders and an additional $10 billion in debt would make this the largest LBO in history, surpassing the $45 billion acquisition of Texas energy company TXU in 2007. Musk briefly described a plan in which Tesla would create a special-purpose fund allowing current investors to keep their shares and letting them buy or sell shares every 6 months. If shareholders are bought out at $420, this would represent a 20% premium over the stock price.