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- Tesla CEO Elon Musk shocked observers on Tuesday by expressing his desire to take the company private.
- In an email to employees, he said the pressures of being a public company create distractions and promote short-term thinking that may not produce the best decisions in the long-term, but added that a final decision could not be made until a shareholder vote is held.
- David Whiston, an equity strategist at Morningstar, wondered why Musk didn’t wait until a deal was certain before talking about going private.
- If a deal doesn’t go through, Musk will have to explain, in detail, why he expressed confidence on Twitter, Whiston said.
Elon Musk went rogue on Twitter Tuesday saying that he was considering taking Tesla private for $420 per share and that he had “funding secured.”
No details about funding have been disclosed, though. And according to a statement from Musk posted after his tweets, no final decision has been made. And that has some experts raising an eyebrow.
James Rosener, a partner at the law firm Pepper Hamilton, said Twitter was not the right medium for a securities disclosure since the platform’s 280-character limit prevented Musk from disclosing enough information relevant to investors – including the structure of the deal, its tax impact, and the amount of debt it would require – to ensure he’s not misleading them. According to Rosener, Musk’s tweet likely ran afoul of the SEC’s anti-fraud rules.
“There’s definitely material omissions,” he said. “Clearly, it was not what any lawyer with any experience in this kind of stuff would advise to put out.”
Musk should have waited until a deal was confirmed
David Whiston, an equity strategist at Morningstar who covers the US auto industry, told Business Insider he was confused by Musk’s tweets, which he said indicated Musk had both the funding and shareholder votes necessary to take the company private.
“I’m still trying to understand why he even went public like this, because I don’t see a point in going public to say you are considering going private unless you’re trying to get, perhaps, the price higher than $420 a share, or you’re just really eager to hurt the short-sellers. Otherwise, why wouldn’t you just wait until you’re definitely doing a deal to say something,” he said.
Tesla’s board did release a statement on Wednesday morning, but it was also very brief and offered few details besides that Musk met with the board last week to bring up the possibility of going private. Musk said via Twitter on Tuesday that the deal was contingent on a shareholder vote, but that “investor support was confirmed.”
“He thinks going private is the best path forward. He’s saying he’s got the money and he’s saying he’s got the votes. So, again, it begs the question: What are you waiting for? Is the board not on board with this? Or is he trying to get more money? Or was he just throwing it out there to gauge a reaction. Or was he just very interested in hurting the short-sellers as quickly as he could?” Whiston said. “The latter doesn’t make sense to me because you can hurt the short-sellers once you announce you’re going private anyway.”
If a deal doesn’t go through, Musk will have to explain, in detail, why he expressed confidence on Twitter, Whiston said.
“Otherwise, it could look like you’re manipulating the stock price to hurt short-sellers.”
Tesla did not immediately respond to a request for a comment.
Besides raising questions about stock manipulation, some experts are also questioning whether going public is actually in the company’s best interest.
Musk said in his statement that the pressures of being a public company create distractions and promote short-term thinking that may not produce the best decisions in the long-term.
But Tesla has big ambitions, and the best way to accomplish its goals could be by staying public, Karl Brauer, executive publisher for Kelley Blue Book, said.
Brauer said he understands why Elon Musk would want to go private, but said that better execution on vehicle production could have improved the company’s financial performance and reduced the amount of scrutiny it faced from shareholders and analysts.
“If there was clear movement toward costs not far outstripping revenue or income … it would drastically change the conversation,” he said.
While a company doesn’t need to be publicly-funded to be successful, companies with ambitions on the scale of Tesla’s tend to use public markets to meet their financing needs, Brauer said.
“I look around at most of the other hugely successful companies, and they’re almost all public.”
Going private may reduce Tesla’s distractions
Musk may have a point about the benefits of going private, according to Michael Ramsey, a research director at Gartner. Like Musk, Ramsey said a privately-funded Tesla would be able to focus on what is best for the company, rather than making decisions based on external pressures.
“I think it’s mostly a good idea for Tesla. There’s a lot of advantages to going private if you feel like your behavior is being altered or affected by demands of Wall Street,” he said.
He cited the company’s publicly-stated goal of making 5,000 Model 3 sedans in one week, a target it missed on multiple occasions but achieved at the end of June, as an example of how relying on public funding misaligned Tesla’s priorities. The company would have been better off making a smaller number of cars and focusing on quality control, he said.
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