The CEO of Tesla, Elon Musk, has just announced that he is considering to take his company from public to private on Tuesday (8/7). The announcement he made on twitter also stated that he hopes all the current investors remain with Tesla even if it’s going private. He also would create a special purpose fund that enables anyone to stay with Tesla, which he had done with Fidelity’s SpaceX Investment. The buyout will be valued at US$ 420/share or US$72 billion of enterprise value.
According to the e-mail that Musk sent to his employees, the reason of this buyout is to give Tesla the environment which it can operate best. He argues that being a public company, they are subject to fluctuation of its stock price that can be a huge disturbance for Tesla’s employees, all of whom are shareholders. Secondly, being a public company makes Tesla automatically a subject to the quarterly earning cycle, which is the reporting of earnings and the paying of dividends in given quarter. That puts Tesla into a condition that it should make decisions best for the short-term, not the long-term. If Tesla goes private, it could concentrate on its long-term mission without having any worries with short-term earning.
What will happen to the stocks when Tesla goes private? Just like any other private companies, investors can’t trade Tesla share on the stock exchange anymore. There are only two given options for its shareholders. First, their stock can be bought at US$420 dollar per share which is already a 20% premium over the stock price at the second quarter. Second, the shareholders can stay as an investor in the private Tesla. Musk said in his twitter that there will be no forced sale.
The announcement has impacted the Tesla’s stock price. Following Musk's tweets, the company’s stock price rose about 8% building on a smaller rise on news earlier in the day that Saudi Arabia's sovereign wealth fund sought an equity stake in the electric vehicle make. The stock closed up 11% on the day. Its stock price reached above the US$360 level and now Tesla is able to pay off some US$900 million in obligations in stock instead of in cash. Today (8/10) the privatization of Tesla is confirmed, the only thing that makes it uncertain is shareholder vote.
Sources:
Tesla
CNBC
Reuters
Bloomberg