After announcing plans for Tesla to potentially go private on Twitter earlier today, Elon Musk sent the market on a frenzy that led to trading on the company’s stock to be halted.
Now the CEO elaborates on the plans – saying that the structure would be much like SpaceX’s.
Musk wrote in an email to employees released by Tesla:
Earlier today, I announced that I’m considering taking Tesla private at a price of $420/share. I wanted to let you know my rationale for this, and why I think this is the best path forward.
First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best. As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.
I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve.
This is especially true for a company like Tesla that has a long-term, forward-looking mission. SpaceX is a perfect example: it is far more operationally efficient, and that is largely due to the fact that it is privately held. This is not to say that it will make sense for Tesla to be private over the long-term. In the future, once Tesla enters a phase of slower, more predictable growth, it will likely make sense to return to the public markets.
Here’s what I envision being private would mean for all shareholders, including all of our employees.
First, I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or they can be bought out at $420 per share, which is a 20% premium over the stock price following our Q2 earnings call (which had already increased by 16%). My hope is for all shareholders to remain, but if they prefer to be bought out, then this would enable that to happen at a nice premium.
Second, my intention is for all Tesla employees to remain shareholders of the company, just as is the case at SpaceX. If we were to go private, employees would still be able to periodically sell their shares and exercise their options. This would enable you to still share in the growing value of the company that you have all worked so hard to build over time.
Third, the intention is not to merge SpaceX and Tesla. They would continue to have separate ownership and governance structures. However, the structure envisioned for Tesla is similar in many ways to the SpaceX structure: external shareholders and employee shareholders have an opportunity to sell or buy approximately every six months.
Finally, this has nothing to do with accumulating control for myself. I own about 20% of the company now, and I don’t envision that being substantially different after any deal is completed.
Basically, I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible.
This proposal to go private would ultimately be finalized through a vote of our shareholders. If the process ends the way I expect it will, a private Tesla would ultimately be an enormous opportunity for all of us. Either way, the future is very bright and we’ll keep fighting to achieve our mission.
Musk also added that the only reason why this hasn’t happened yet is that they need to do a shareholder vote, which sounds like is going to happen.
Update: Trading of TSLA as resumed on the NASDQ and the stock is up 12% at the time of writing.
That’s the ‘next level short burn of the century’ that Musk warned of earlier this year. If this goes through, they will have to cover their short position, which was worth over $12 billion at the last reporting date.
I mean – sure there are operating advantages as described by Musk in the email above, but it is also a giant finger to those betting against the company:
— Fred Lambert (@FredericLambert) August 7, 2018
Love or hate the man, that’s one of the most badass moves I have seen on the financial markets for a long time.
You have some very powerful people like billionaire hedge fund manager David Einhorn who keeps justifying every quarter to his investors why they are losing money on his decision to bet against Tesla. It will be interesting to read his next letter to investors.
There’s also an army of internet trolls who live for the purpose to support the bear case against Tesla and they will most likely lose their purpose if this goes through.
And even if it doesn’t, Musk just showed them that he has a special weapon in his pocket, which leads me to believe that we might have seen the peak shorting on Tesla no matter what happens next.
What do you guys think? Let us know in the comment section below.
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