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Market Stunned After Musk Tweets Intention To Take Tesla Private

Courtesy of ZeroHedge. View original post here.

Update 6: The LBO by Tweet continues, with Musk now saying that "Shareholders could either to sell at 420 or hold shares & go private.""

Shareholders could either to sell at 420 or hold shares & go private

— Elon Musk (@elonmusk) August 7, 2018

Update 5: Tesla stock was finally halted at 2:08PM, well over an hour after Musk first tweeted:

  • *TRADING HALTED:(TSLA) Halt News Pending

Update 4: Musk now reveals that he plans to use a "SPV" for the going private transaction:

My hope is *all* current investors remain with Tesla even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity’s SpaceX investment.

— Elon Musk (@elonmusk) August 7, 2018

Update 3: Bloomberg commentator Sebastian Boyd is not buying it for a very simple reason: math (although meth would make it more palatable):

Some Tesla Math

Incidentally, Tesla has a free-float of 127.5 million shares. At $420 a share, that would cost you $53.6 billion. The company already has net debt of of $8.8 billion and an adjusted net leverage ratio of 13 times. Were it to be bought in a management-led LBO, a back-of-the envelope calculation would give it a leverage ratio of over 90 times, worse on a trailing 12-month basis. You can't run a company on math like that.

Update 2: And just like that, the fluid situation has just gone from bizarre to absolutely surreal, because in his very next tweet, instead of providing additional details on what is a major market moving annouincement Musk said…

Good morning ????

— Elon Musk (@elonmusk) August 7, 2018

Although, in a follow up tweet, Musk appears to confirm the "deal":

I don’t have a controlling vote now & wouldn’t expect any shareholder to have one if we go private. I won’t be selling in either scenario.

— Elon Musk (@elonmusk) August 7, 2018

And another alleged confirmation comes from Ross Gerber of Gerber Kawasaki:

Tesla has confirmed to me these are real tweets from Elon and more information may be released soon. Stay tuned this is a real story. $TSLA

— Ross Gerber (@GerberKawasaki) August 7, 2018

The bizarre odyssey continues, with Musk responding "Yes" to to a question that an LBO "saves a lot of headaches":

Yes

— Elon Musk (@elonmusk) August 7, 2018

For now the stock has no idea what is going on:

* * *

Update: Never one to miss an opportunity, Elon Musk has just tweeted – from his verified account – that he is considering taking the carmaker private at a price of $420, and even suggests he has the funding…

In a subsequent tweet, responding to Fox Business News' Liz Claman, Musk confirms that he is apparently indeed serious.

The stock prompt spiked even higher…

… even though nobody has any idea what is going on: is it legal for Musk to say what he did without halting the stock first? Is he simply baked and inviting countless law suits? Who is providing the massive debt to a company with billions in negative cash flow? At what rate? Can Musk even do this when he is a top shareholders (and stands to reap huge gains) and his announcement creates a massive conflict of interest?  If this is even close to true, TSLA bonds (those without a change of control clause) should be sliding.

Or maybe this is just another attempt by Musk to create a short squeeze and "crush the shorts."

And if he is really about to MBO – CDS buyers will be loving it…

*  *  *

EARLIER

Did we just find the latest greater fool?

The FT reports that Saudi Arabia’s sovereign wealth fund has built a significant stake in Tesla – the latest bold bet by the state fund overseen by powerful crown prince Mohammed bin Salman.

Saudi’s Public Investment Fund (PIF) built the undisclosed stake of between 3 and 5 per cent of the electric vehicle maker’s shares this year, according to people with direct knowledge of the matter.

Interestingly, The FT reports that PIF initially approached Musk about purchasing newly issued shares but Musk reportedly rebuffed the offer – perhaps anxious of the perception of further dilution and the promises he made of  the need for more capital.

Note, however, that Tesla gets $0 from this secondary market investment – at a time when the carmaker is losing a record amount of money.

Tesla shares are jumping on the news…

And TSLA bonds are up but remain considerable "cheaper" than stocks…

The Saudi state fund reportedly acquired the position in secondary markets with the help of JPMorgan – which is odd since JPMorgan has an 'underweight' on TSLA with a profit target of $195 (a great way to get the stock lower for their wealthy gulf clients).

And all this coming just weeks after Aramco suddenly decides to raise billions in debt instead of IPOing?

More recently, the PIF has been in talks with global banks to borrow between $6bn and $8bn, marking the first time that the vehicle entrusted with driving the kingdom’s economic transformation will directly tap banks to fund its mission.

A skeptic might wonder whether, since Tesla can’t buyback stock directly using debt-issuance (WACC too high), it is using US bond investors as a source of funds and Saudis as the proxy buyer to achieve the same effect.


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