August 29, 2018, 5:00 AM EDT

Elon, What Were You Thinking?

A detailed look at the ill-fated plan to take Tesla private.

On Aug. 7, a week after reporting a record loss at Tesla Inc., Chief Executive Officer Elon Musk stunned Wall Street by tweeting his intention to take the electric car maker private. Previous big buyouts like that of Dell Inc. took many months to play out; Musk’s ill-fated effort to escape public-company scrutiny lasted only 17 days. Here’s a quick look at the whirlwind process that’s left Tesla pretty much right where it started—except for the shareholder suits.

Aug. 7

Elon’s To-Do List

◻ Make lots more Model 3 cars.

◻ Get more cash (to build new models, new plants).

◻ Punish the short sellers (aka “the haters”).

Hmmm... How to escape

public scrutiny while

facing those challenges?

PERFECT SOLUTION #1

 

Take the company private!

Consult with

others

Do what

I want

Get advice

from the

Tesla board.

Query large

shareholders.

Line up

investment

bankers.

Sounds boring

Use Twitter!

He wows the markets with a tweet naming

a buyout price of $420 a share, about a 20 

percent premium, valuing the company at about

$72 billion. And he assures the skeptics by

blithely mentioning “financing secured.”

AN ABORTED TAKEOFF

 

Stock jumps, but not to anywhere

near the buyout price; then falls

Tweet!

$380

340

300

8/1/18

8/28/18

Pivot time!

Scramble to address calls for deal details and criticism of the

disclosure-by-tweet process.

Get a statement of

support from Tesla’s

directors (some of whom

were blindsided, too).

Hire some

investment bankers.

Hunt for cash

Goldman Sachs has long

been Musk’s banker

of choice, so naming it—

before a contract is

signed—is a no-brainer.

Add Morgan Stanley

and Silver Lake.

Get Riyadh on the

phone! Saudi Arabia’s

sovereign wealth

fund had approached

Musk in 2017.

Easy enough, since the

board includes Musk’s

brother, plus several

members with business

ties to the mogul.

The new math

PERFECT SOLUTION #2

 

Since it would likely be too costly to buy

up all shares in a conventional leveraged

buyout, Musk proposes a hybrid entity

wherein holders of roughly two-thirds of

Tesla’s shares roll their equity into the

privatized company—lowering the funds

needed to as little as $24 billion.

Damn those pesky details

Discussions with

Tesla’s big institutional

shareholders reveal

some have limits on

how much they can

invest in a privately

held company.

Wall Streeters say

some deep-pocketed

investors may expect

to have a say in

Tesla’s management

in return for cash—

eliminating some of

the flexibility Musk

hoped to gain

by going private.

SEC rules to protect

unsophisticated

investors likely mean

that a post-buyout Tesla

wouldn’t be allowed

to accept investments

from many of its small

shareholders.

17 days later ...

PERFECT SOLUTION #3

 

Don’t take the company private!

Musk concedes the

deal would be a

lengthier distraction

“than initially

anticipated.” Shares

tumble—they’re

now 9 percent lower

than before

Musk’s tweet.

Aug. 24

Elon’s Expanded To-Do List

◻ Make lots more Model 3 cars.

◻ Get more cash (to build new models, new plants).

◻ Punish the short sellers (aka “the haters”).

◻ Avoid SEC censure over botched buyout announcement.

◻ Deal with shareholder suits.

◻ Ditch the Twitter account (or not!).

Aug. 7

Elon’s To-Do List

◻ Make lots more Model 3 cars.

◻ Get more cash (to build new models, new plants).

◻ Punish the short sellers (aka “the haters”).

Hmmm... How to escape

public scrutiny while

facing those challenges?

PERFECT SOLUTION #1

 

Take the company private!

Consult with

others

Do what

I want

Line up investment

bankers.

Get advice from

the Tesla board.

Query large

shareholders.

Sounds boring

Use Twitter!

He wows the markets with a tweet

naming a buyout price of $420 a share,

about a 20 percent premium, valuing

the company at about $72 billion. And

he assures the skeptics by blithely

mentioning “financing secured.”

AN ABORTED TAKEOFF

 

Stock jumps, but not to anywhere

near the buyout price; then falls

Tweet!

$380

340

300

8/1/18

8/28/18

Pivot time!

Scramble to address calls for

deal details and criticism of the

disclosure-by-tweet process.

Hire some

investment bankers.

Goldman Sachs has long

been Musk’s banker

of choice, so naming it—

before a contract is

signed—is a no-brainer.

Add Morgan Stanley

and Silver Lake.

Get a statement of

support from Tesla’s

directors (some of whom

were blindsided, too).

Easy enough, since the

board includes Musk’s

brother, plus several

members with business

ties to the mogul.

Hunt for cash

Get Riyadh on the

phone! Saudi Arabia’s

sovereign wealth

fund had approached

Musk in 2017.

The new math

PERFECT SOLUTION #2

 

Since it would likely be too costly to buy

up all shares in a conventional leveraged

buyout, Musk proposes a hybrid entity

wherein holders of roughly two-thirds of

Tesla’s shares roll their equity into the

privatized company—lowering the funds

needed to as little as $24 billion.

Damn those pesky details

SEC rules to protect

unsophisticated

investors likely mean

that a post-buyout

Tesla wouldn’t be

allowed to accept

investments from

many of its small

shareholders.

Wall Streeters say

some deep-pocketed

investors may expect

to have a say in

Tesla’s management

in return for cash—

eliminating some of

the flexibility Musk

hoped to gain

by going private.

Discussions with

Tesla’s big institutional

shareholders reveal

some have limits on

how much they can

invest in a privately

held company.

17 days later ...

PERFECT SOLUTION #3

 

Don’t take the company private!

Musk concedes the

deal would be a

lengthier distraction

“than initially

anticipated.” Shares

tumble—they’re

now 9 percent lower

than before

Musk’s tweet.

Aug. 24

Elon’s Expanded To-Do List

◻ Make lots more Model 3 cars.

◻ Get more cash (to build new models, new plants).

◻ Punish the short sellers (aka “the haters”).

◻ Avoid SEC censure over botched buyout announcement.

◻ Deal with shareholder suits.

◻ Ditch the Twitter account (or not!).

Aug. 7

Elon’s To-Do List

◻ Make lots more Model 3 cars.

◻ Get more cash (to build new models, new plants).

◻ Punish the short sellers (aka “the haters”).

Hmmm... How to escape

public scrutiny while

facing those challenges?

PERFECT SOLUTION #1

 

Take the company private!

Consult with

others

Do what

I want

Line up

investment

bankers.

Get advice from

the Tesla board.

Query large

shareholders.

Sounds boring

Use Twitter!

He wows the markets with a tweet

naming a buyout price of $420 

a share, about a 20 percent

premium, valuing the company

at about $72 billion. And he

assures the skeptics by blithely

mentioning “financing secured.”

AN ABORTED TAKEOFF

 

Stock jumps, but not to anywhere

near the buyout price; then falls

Tweet!

$380

340

300

8/1/18

8/28/18

Pivot time!

Scramble to address calls for

deal details and criticism of the

disclosure-by-tweet process.

Hire some

investment bankers.

Goldman Sachs has

long been Musk’s

banker of choice,

so naming it—before

a contract is signed

—is a no-brainer.

Add Morgan Stanley

and Silver Lake.

Get a statement of

support from Tesla’s

directors (some

of whom were

blindsided, too).

Easy enough, since

the board includes

Musk’s brother, plus

several members

with business

ties to the mogul.

Hunt for cash

Get Riyadh on the

phone! Saudi Arabia’s

sovereign wealth

fund had approached

Musk in 2017.

The new math

PERFECT SOLUTION #2

 

Since it would likely be too costly

to buy up all shares in a

conventional leveraged buyout,

Musk proposes a hybrid entity

wherein holders of roughly

two-thirds of Tesla’s shares roll

their equity into the

privatized company—lowering

the funds needed to as

little as $24 billion.

Damn those pesky details

SEC rules to protect

unsophisticated

investors likely mean

that a post-buyout

Tesla wouldn’t be

allowed to accept

investments from

many of its small

shareholders.

Wall Streeters say

some deep-pocketed

investors may expect

to have a say in

Tesla’s management

in return for cash—

eliminating some of

the flexibility Musk

hoped to gain

by going private.

Discussions with

Tesla’s big institutional

shareholders reveal

some have limits on

how much they can

invest in a privately

held company.

17 days later ...

PERFECT SOLUTION #3

 

Don’t take the company private!

Musk concedes the

deal would be a

lengthier distraction

“than initially

anticipated.” Shares

tumble—they’re

now 9 percent lower

than before

Musk’s tweet.

Aug. 24

Elon’s Expanded To-Do List

◻ Make lots more Model 3 cars.

◻ Get more cash (to build new models, new plants).

◻ Punish the short sellers (aka “the haters”).

◻ Avoid SEC censure over botched

buyout announcement.

◻ Deal with shareholder suits.

◻ Ditch the Twitter account (or not!).

Hyperdrive