Tesla has been in for a wild ride this year on the stock market but in a recent announcement, Elon Musk said that he had decided to pull the plug on investors and take his company private. The reaction? While the board of directors cheered on the CEO, other analysts weren’t convinced that Musk would be able to pull off the Tesla buyout.
Musk’s Twitter Announcement
Tesla’s nine-member board of directors, including Musk’s brother Kimbal, said in an official statement that the CEO had discussed the idea of privatization with them and the board was currently in the midst of evaluating the proposal.
The announcement came a day after Musk dropped a bombshell on Twitter saying that he was ‘thinking of taking Tesla private’. Many even speculated that the decision was taken solely by Musk without any consultation with the rest of the board members.
In the belated statement, the board didn’t give any details on how they planning to acquire the funding for taking Tesla private, fueling further uncertainty among analysts about the feasibility of the proposal. Barclay’s analyst made a statement on Wednesday in which he said that the expensive privatization plan was too ridiculous, even for Tesla.
SEC Shows Concern
Investors aren’t the only ones concerned about the new deal. A source inside the company revealed that even the Security and Exchange Commission has been alarmed by Musk’s tweets and currently in touch with him to inquire more about the proposal. SEC has even asked the CEO for proof that he had secured the funding before making a public statement on Twitter.
If Musk fails to provide the proof, he could get into serious trouble for manipulating stock prices with false information. The source added that the inquiry was instigated by SEC’s San Francisco office, although it’s highly unlikely that the agency would launch a formal investigation in this matter.
The news of SEC inquiring about Musk’s twitter post was first posted in The Wall Street Journal, which warned that the CEO could be a peril if the post was in the least bit misleading. Neither SEC nor Musk chose to comment on the issue.
Morgan Stanley Weighs In
Analyst Adam Jonas from Morgan Stanley, wrote a note to his clients cautioning them against investing in Tesla during the current circumstances. Jonas said that Musk was simply increasing premium and financial leverage by disclosing a very serious proposal on Twitter.
Other investors are equally baffled by Musk’s choice of platform and whether his casual tweet could have a different motive behind it. Ever since the news broke, Tesla’s stocks have shot up by 11 percent, and some are even predicting that the prices could hit the $420 mark that Musk had promised to pay his investors upon the acquisition.
Despite his skepticism, Jonas told his clients that there could be a possibility for this billion-dollar acquisition through an equity buyout (EBO). Morgan Stanley believes that if Tesla wanted, it could sell its shares in the private equity market through an auction. This could require financing from current shareholders, new strategics and even Musk’s other big company, SpaceX.
Skepticism from Investors
Jonas says that so far he has received no information on whether the deal is being considered seriously at Tesla. CNBC reported on Thursday that the board members will hold a meeting with financial advisors to explore the buyout proposal put forth by Musk. Although, skepticism among investors has already led to a 7 percent decrease in stock prices.
Jeffery Osborne, an analyst at Cowen, also echoed Jonas’ sentiment in a note to his investors saying that he didn’t believe that Tesla’s stocks would ever be worth $420. He said that Musk had clearly underestimated the power of his tweet to 22 million followers which spread like wildfire.
In June the CEO had tweeted that his social media posts were simply sporadic thoughts instead of ‘carefully crafted corporate bs’. Musk’s nine-word tweet has already triggered a legal storm with many investors considering filing lawsuits and for calling for strict shareholder action.
Do you think Elon Musk will be able to take Tesla private?