Tesla board weighs Musk’s go-private gambit

Dana Hull
Bloomberg News

Tesla Inc. directors said they knew last week about Elon Musk’s surprise proposal to take the electric-car maker private, but both the board and CEO have a long way to go to convince investors the idea is credible.

“Last week, Elon opened a discussion with the board about taking the company private,” six directors on Tesla’s nine-member board said in a statement. “The board has met several times over the last week and is taking the appropriate next steps to evaluate this.”

While the board lent credence to the idea that Musk’s tweets Tuesday were more than a spur-of-the-moment whim from the notoriously impulsive billionaire, skepticism abounds that he has secured the means to take the electric-car maker private.

While the chief executive officer suggested he did in an initial post, Tesla hasn’t disclosed any sources of financing, and no one has stepped forward publicly to say they’re backing the plan. The board said only that Musk had “addressed the funding for this to occur.”

Tesla shares opened down as much as 3.3 percent Wednesday and were down 1.2 percent to $374.81 late morning. That’s well below the $420 price at which Musk said shareholders would be bought out.

“What does Musk mean by funding secured?” Toni Sacconaghi, an analyst at Bernstein who’s long been bearish on Tesla shares, asked in a note to clients. “How could Tesla possibly fund such a large transaction?”

Musk owns an almost 20 percent stake in Tesla, meaning he’d still need roughly $70 billion in financing to take Tesla private. That kind of money may be accessible through sovereign wealth funds or other strategic investors, said Dwight Scott, president of Blackstone Group LP’s GSO Capital Partners. Musk’s money-losing and cash-burning company is an unlikely candidate for debt investors to be willing to help go private.

“It’s very hard to put leverage on this company,” due to its negative cash flow and “operational issues,” Scott said Wednesday on Bloomberg Television.

It’s possible Musk could persuade some large institutional and strategic investors to remain shareholders in the private company, which could reduce his funding needs, Sacconaghi said.

“What investors are waiting for is more details around what is meant when Elon Musk says funding is secured,” George Galliers, an analyst at Evercore ISI who rates Tesla the equivalent of a hold, said on Bloomberg Television. “They are raising a lot of sensible questions around who would be providing the funding and how exactly this might work.”