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Aug 13, 2018

Elon Musk says Saudi interest sparked effort to take Tesla private

Tesla Analyst Says Company Questions Make Going Private 'Optimistic'

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Elon Musk revealed that Saudi Arabia has long been interested in taking Tesla Inc. (TSLA.O) private, which gave him the confidence last week to drop the bombshell that he was considering the blockbuster potential deal.

Saudi Arabia’s sovereign wealth fund first approached Musk in early 2017 about taking Tesla off the market, he wrote in a blog post Monday. He confirmed the Public Investment Fund recently bought an almost 5 per cent stake and is interested in helping take Tesla private, as Bloomberg News reported Sunday.

Musk described a meeting late last month in which a managing director for the fund expressed regret that such a transaction hadn’t moved forward. “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,” Musk wrote, adding that this is why he tweeted on Tuesday that he had “funding secured” to take Tesla private at US$420 a share.

The blog post is the latest in what’s been a piecemeal approach by Musk, 47, to explaining how he intends to pull off taking his money-losing electric-car maker private at a more than US$70 billion market capitalization. The billionaire chairman and chief executive officer made no public mention of the Saudi fund’s involvement until Monday. Tesla’s board released a three-sentence-long statement last week that only vaguely addressed how the transaction would be funded and didn’t bring up the kingdom’s potential role.

Legal Scrutiny

Several investors have since sued Musk and Tesla, claiming the company’s share price was manipulated. The Securities and Exchange Commission is said to be intensifying its scrutiny of the company and its chief executive officer after having started gathering general information about Tesla and Musk’s earlier public pronouncements about manufacturing goals and sales targets.

Why Tesla's Best Is Yet to Come

Aug.13 -- Bloomberg Editor-in-Chief Emeritus and Bloomberg Opinion columnist Matt Winkler examines the opposing views of shareholders and analysts on Tesla Inc. He speaks on "Bloomberg Daybreak: Americas." His opinions are his own.

One of Tesla’s biggest critics, Vertical Group analyst Gordon Johnson, read Musk’s blog post as walking back his “funding secured” claim last week. Johnson cited Musk’s statement Monday that the Saudi fund’s support for taking Tesla private was “subject to financial and other due diligence and their internal review process for obtaining approvals.”

“He is specifically stating that funding is not secured, and I think that’s a big deal,” Johnson, whose US$93 price target for Tesla’s stock is the lowest among Wall Street analysts, said on Bloomberg Television. “The question then becomes, what does the SEC do here, and do the shareholders stick with him?”

Question Answered

Tesla bull Gene Munster of Loup Ventures said the blog post “slightly increases” the odds that the company will be taken private. He cited Musk’s commentary and Bloomberg’s report on how the Saudi fund was interested in getting involved as part of the kingdom’s efforts to hedge against the world becoming less reliant on oil. “The question, ‘Where would the money come from?’ has been answered,” said Munster. He estimates a greater than 50 per cent likelihood that Tesla will be private in a year, with Musk trying to limit investors like the Saudi fund to holding a stake of 20 per cent or less, which would be in line with his holding in the company.

Tesla shares rose 0.7 per cent to US$358.03 as of 2:10 p.m. Monday in New York trading.

Best Guesses

Musk wrote that he’s continued to communicate with the Saudi fund managing director, whom he didn’t identify by name. He said he’s reaching out to Tesla’s other large shareholders and that most of the capital required to take the company private will be funded by equity, rather than debt.

“The US$420 buyout price would only be used for Tesla shareholders who do not remain with our company if it is private,” he wrote, meaning that the actual capital needed to be raised would be “dramatically” less than US$70 billion.

Musk said that his “best estimate right now” is that roughly two-thirds of the shares that Tesla’s current investors own would stick with a private Tesla.

After building that syndicate, Munster of Loup Ventures said that Tesla will need to create a vehicle for investors to “roll their public investment into a private one,” then obtain regulatory and shareholder approvals.

“Our best guess is this will take three-to-nine months,” Munster said.