Elon Musk says he’s been talking to Saudi Arabia about taking Tesla private

Photo by Joshua Lott/Getty Images

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.”

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.

Photo by Drew Angerer/Getty Images

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.

Comments

Sounds like he has a much looser definition of "funding secured" from the rest of us.

No no no it’s completely normal.

I just bought a lottery ticket, prize money secured!

Curious how the Tesla fan boys will react to the Saudis gaining control of their beloved company. My guess is if Elon says it’s okay, they’ll dutifully agree.

All hail our lord and saviour, Elongated Muskrat. — Tesla fanboys.

As opposed to Wall Street and short sellers?

5% share isn’t gaining control

Pretty sure he means if they go through with the full purchase.

They aren’t purchasing the entire company. If you read the official letter it says the Saudi fund will fund the privatisation but Tesla will still have a broad (private) investor base.

Roughly speaking $50 billion out of a $70 billion valuation is about as big as its going to get. You think anyone else will have any real power?

Didn’t say they were purchasing the whole company. My point was if they purchase what is contemplated, they’ll own much more than 5%.

the deal to take it private he estimated at 75 billion. The saudis would fund 50 billion of that. They pretty much own it at that point.

The Saudis, currently have a 5% stake in Tesla, Musk has 22%- so 27% of the 170.59M outstanding shares, leaving 124.53M shares. If they were all to be purchased, at $420/share, it’d be just over $52B. But the plan is to give investors the option of taking the $420/share, or remaining shareholders in a closely-held, not publicly traded TSLA, similar to SpaceX’s current structure. The thought is many investors would do that, potentially cutting the cost to privatize down significantly. Also, even if the Saudis end up paying the full $52B, they would likely do that, to a large extent, by extending loans on favorable terms, rather than buying up more shares, leaving Musk as the largest single shareholder, even at 22%.

"The thought is many investors would do that,.."
That is a guess. When the money is on the table and investors have to make a choice, things can change.

at $420/share compared to current price it would be too good for many to pass up.

I guess you can stay curious some time longer, since it isn’t happening even if the Saudi fund takes Tesla private.

Tesla really is the Apple of the car industry. Such a polarizing company.

And you would be wrong.

As a fan of Tesla and Elon, I can say that I think this is a horrid move he’s making, and that any deals with Saudi Arabia would stop any inclination I might have had in the future to purchase a Tesla.

Partnering with any country in the Middle East is a pretty huge mistake. Not one of them have decent human rights records. Most of them treat anyone who disagrees with their government like crap.

If Elon goes ahead with this, it will be the end of my "fandom".

He must be getting desperate for money if he’s willing to entertain the Saudi’s as a partner.

There are ways around it. Mark Zuckerberg, owns approximately 16% of Facebook but commands 60% of its voting power.

Wow, so one of the biggest future battery makers in the world (and a highly prized tech brand) will be owned by a barbaric autocracy! Well done, Elon.

"highly prized tech brand"

That is going down the toilet as we speak. Only the fanboys are defending this company at this point; everyone else has lost hope few months ago.

While people like you care way too much about what supposed fanboys think. I don’t know which is worse, the blind fanboys or the blind haters.

Don’t see any blind hate in his statement there. Sure he seems to have feelings about where the company is right now, but that doesn’t directly indicate hate

I think you know what ‘hater’ means in this context. Besides, he’s calling anyone that has anything positive to say about Tesla is a fanboy. Not to mention the fact he called Elon Musk a muskrat.

Besides, he’s calling anyone that has anything positive to say about Tesla is a fanboy

No, I’m calling out the blind fanboys who follow Musk and Tesla like the Second Coming of Jesus Christ. It’s pretty much a cult at this point. Whatever Musk says; however he behaves on Twitter, the Musketeers will be there to defend him from critics and analysts.

Not to mention the fact he called Elon Musk a muskrat.

Correction: I called him an Elongated Muskrat.

I’m not a Musk fan at all, but if it’s true that Tesla needs to go private, how else could they do it? Saudis are probably the biggest risk taking investors there are, at least among those that could finance this deal. The pipe dream of Gates or Bezos or Buffet (or all three) coming anywhere near investing billions in Tesla was just that, a pipe dream.

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