Shares of Tesla (NASDAQ:TSLA) soared on Tuesday after CEO Elon Musk raised the possibility of taking the company private at a price of $420 per share in a tweet -- and said that he had secured funding for such a transaction.
Am considering taking Tesla private at $420. Funding secured.— Elon Musk (@elonmusk) August 7, 2018
At that share price, it would take around $57 billion to buy the Tesla shares not held by Musk himself -- which raises an obvious question: Who has committed to providing the funding that Musk claims to have secured?
We're learning who isn't providing the funding
The short answer is that we still don't know. The question seemed to hang in the air all day on Wednesday, and it remains unanswered as I write this on Thursday morning.
We are learning who isn't funding the privatization of Tesla, though. The list of sources that have been tentatively ruled out is growing, thanks to some intrepid business journalists at Axios and Bloomberg. It includes:
- All of the major Wall Street banks.
- Several deep-pocketed Silicon Valley companies, including Apple and Uber Technologies.
- Major private equity firms, including KKR, Silver Lake Partners, and TPG Capital.
- SoftBank Group and its $100 billion Vision Fund. (Bloomberg reported that Musk met with SoftBank in April 2017, but the two couldn't agree on terms for an investment.)
- Abu Dhabi's huge sovereign wealth fund, Mubadala Investment Company.
It's possible that the investor will turn out to be Saudi Arabia's sovereign wealth fund, called the Public Investment Fund (PIF). PIF recently amassed a substantial stake in Tesla, between 3% and 5% of shares outstanding, according to the Financial Times and The Wall Street Journal, as part of a larger tech-stock buying spree.
But as of now, there's no indication that PIF has any interest in acquiring more of Tesla.
Tesla has yet to explain itself
We haven't heard any more details from Tesla, either. It has yet to make a full statement or file an 8-K with the Securities and Exchange Commission to explain what's going on.
All we have from the company at this point (aside from Musk's tweets and blog post on Tuesday) is a terse statement issued by Tesla's independent directors on Wednesday:
Last week, Elon opened a discussion with the board about taking the company private. This included discussion as to how being private could better serve Tesla's long-term interests, and also addressed the funding for this to occur. The board has met several times over the last week and is taking the appropriate next steps to evaluate this.
What's the big deal? The concern here is that Musk's tweet might have been nothing more than a bluff, a ploy to give Tesla's stock price a boost. If it turns out that Musk didn't have "funding secured" when he tweeted on Tuesday, then he may find himself in hot water with regulators -- and possibly the target of lawsuits filed by angry short-sellers.
Those aren't just hypothetical risks. The Wall Street Journal reported on Wednesday that the Securities and Exchange Commission is already questioning whether Musk's statement was true -- and if so, why he chose to make the disclosure via tweets.
The longer Tesla waits, the worse this looks
Tesla's silence isn't helping its investors. The company's share price spiked in the hours after Musk's tweet, but it has been sliding since. As of 11 a.m. EDT on Thursday, Tesla's share price was down about 5.4% from Tuesday's close, a sign that doubts about the reality of the deal are growing.
The more time passes without the company providing the public with details about its plan, the harder it will be to avoid the conclusion that Musk's tweet was a bluff, intended to give Tesla's stock price a boost for other reasons. If so, it may yet turn out that the traders who shorted Tesla's stock will have the last laugh.
John Rosevear owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Tesla. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.