Elon Musk wrote a blog post titled Update on Taking Tesla Private addressing the most common questions following last weeks going private circus. We still believe there is a greater than 50% chance Tesla is private in a year, and the blog post slightly increased those odds. We see 5 key takeaways from the update.
- Funding secured. The “funding secured” comment was driven by previous conversations with the Saudi Sovereign Wealth Fund that expressed interest in providing the funding to take Tesla Private. Bloomberg has reported that the Saudi government plans to turn the private investment fund into a $2T vehicle which would have ample funds to be an anchor investor in a private Tesla, so the question, “where would the money come from?” has been answered.
- Investor concentration. If Musk can help it, we believe he will limit additional investors to 20% equity (he owns 22%), which implies the Saudi fund could only invest $16B. If he’s unable to build a syndicate for the other $10B (which gets us to $26B), he will likely accept the Saudi’s at greater than 20% ownership.
- Legal risk. We do not believe Elon Musk is at legal risk with his use of the term “funding secured.” Today’s blog post argued it was Musk’s interpretation that the funding was secured. While we are not securities law experts, our interpretation is the previous meetings with the Saudis created enough grey area to dismiss stock manipulation legal risk from the SEC. That said there are at least two class action lawsuits underway which may take months to settle.
- Funds needed. Musk suggested two-thirds of shares owned by existing investors would roll over into a private Tesla, implying a $25-$30B funding requirement.
- Next steps. Next steps will take several months to play out. First, Tesla needs to build a syndicate. Second, a vehicle must be created for existing shareholders to roll their public investment into a private one. Lastly, regulatory approvals will need to be obtained and the plan will be taken to a shareholder vote. Our best guess is this will take 3-9 months.
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