After days of speculation and conflicting reports, Elon Musk has broken his silence about his plan to take Tesla private. In a Monday morning blog post, Musk explained that he has been in talks for weeks with managers of Saudi Arabia’s sovereign wealth fund to finance the massive deal, which some estimate could cost as much as $50 billion. But it’s unclear whether Musk’s explanation will mollify federal regulators, who are reportedly looking into whether his statements from last week were misleading.
Musk said that the Saudis first approached him about taking Tesla private in early 2017, but only ramped up those talks in recent days after purchasing almost 5 percent of the company’s stock on the public markets. Musk said he took a meeting with the managing director of the fund on July 31st, where the director expressed regret that the going private talks hadn’t moved forward.
“He strongly expressed his support for funding a going private transaction for Tesla at this time,” Musk wrote. “I understood from him that no other decision makers were needed and that they were eager to proceed.” He added, “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. This is why I referred to ‘funding secured’ in the August 7th announcement.”
“no question that a deal with the Saudi sovereign fund could be closed”
Musk also said, “Obviously, the Saudi sovereign fund has more than enough capital needed to execute on such a transaction.” But the Saudi fund’s solvency isn’t so obvious, according to a report in the Wall Street Journal. The fund is “struggling to find ways to finance its existing commitments,” the Journal reported, and sources cast doubt on the idea that the Saudis would increase their current stake in Tesla.
Last Tuesday, Musk sent shockwaves through the market when he tweeted that he was “considering” taking Tesla private “at $420” and that he has secured the funding to do so. The stock exchange briefly halted trading on Tesla shares as investors waited for more information. In a subsequent email to employees, Musk indicated that the tweet was serious, not just a weed joke. “The reason for doing this is all about creating the environment for Tesla to operate best,” Musk wrote.
Questions swirled about whether Musk was being entirely forthcoming about the massive amount of funding needed to take Tesla private. Frantic efforts to root out the funder (or funders) continued in the days since. The Securities and Exchange Commission reached out to the Tesla CEO for more information about what would be the largest corporate buyout in history. And rumors began circling about the possible involvement of the Saudis.
Those rumors turned out to be well-founded. Musk said that he has stayed in communication with the Saudi’s wealth fund about the deal subsequent to the July 31st meeting and has kept Tesla’s board of directors informed throughout the process. He reiterated his desire to provide a mechanism for current Tesla shareholders to remain shareholders even after the buyout. But Musk emphasized that a privatization deal has yet to be finalized, and everything could still change. After all, this is Elon Musk we’re talking about.
Another critical point to emphasize is that before anyone is asked to decide on going private, full details of the plan will be provided, including the proposed nature and source of the funding to be used. However, it would be premature to do so now. I continue to have discussions with the Saudi fund, and I also am having discussions with a number of other investors, which is something that I always planned to do since I would like for Tesla to continue to have a broad investor base. It is appropriate to complete those discussions before presenting a detailed proposal to an independent board committee.
He claimed that the deal would be financed with equity rather than debt, arguing that Tesla was saddled with enough debt at the moment. He estimated that “approximately two-thirds of shares owned by all current investors would roll over into a private Tesla.” And he dismissed reports that a buyout could cost as much as $70 billion, stating that they “dramatically overstate the actual capital raise needed.” But he did not clarify what the actual number might be.
Updated August 13th 1:41 pm ET: Updated to include information from a Wall Street Journal report.