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Elon Musk says he’s ‘considering taking Tesla private’

Tesla CEO Elon Musk shocked the markets on Tuesday with a series of tweets outlining the mercurial entrepreneur’s desire to take the company private.
Elon Musk (Photo by Joshua Lott/Getty Images)

Tesla CEO Elon Musk shocked the markets on Tuesday with a series of tweets outlining the mercurial entrepreneur’s desire to take the company private.

In a tweet from Tuesday, Musk wrote that he was “considering taking Tesla private at $420” per share and that the funding was “secured.” It’s a move that Musk discussed last week with some of Tesla’s board members, and those discussions reportedly addressed “the funding for this to occur” and “how being private could better serve Tesla’s long-term interests.”

Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.

— Elon Musk (@elonmusk) August 7, 2018

At a price of $420 per share, Tesla would be valued at $82 billion including debt. If Musk takes Tesla private, it would mark the largest leveraged buyout in history. A leveraged buyout is the acquisition of a controlling share of a company by its management through a combination of equity and debt.

Tesla stock shot up 11 percent on Tuesday after the tweets, closing near $380—about 10 percent below the mark at which Musk said he’d take the company private.

Musk said taking Tesla private would create a better environment for the company and its workers.

“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,” Musk wrote in a blog post on the Tesla website. “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.”

Def no forced sales. Hope all shareholders remain. Will be way smoother & less disruptive as a private company. Ends negative propaganda from shorts.

— Elon Musk (@elonmusk) August 7, 2018

Still, some are questioning the proposal.

“The market doesn’t believe him,” David Kudla, the CEO of Mainstay Capital Management, which is betting against Tesla, told Bloomberg. “His credibility has come into question over a number of things. If this were real, you’d expect the stock to go closer to $420 a share than it has.”

What would a private Tesla mean for shareholders? They’d have two options, according to Musk, and assuming the stock price does indeed reach $420 and the buyout occurs: sell shares at $420, “which is a 20% premium over the stock price following our Q2 earnings call,” or stay on as private investors through a “special purpose fund” that enables all shareholders to stay with the company.

Some financial analysts are skeptical of the proposal. First, it’s unclear what kind of special-purpose fund Musk is talking about and how it would work. Also, such a fund that’s accessible to all shareholders would be unprecedented, according to lawyers who spoke to the Wall Street Journal. However, investors who did choose to enter the proposed special-purpose fund could reap one major benefit: not having to pay capital gains taxes on their investment.

But, for now, the source of Musk’s “secured” funding remains unclear, as does the fate of his proposal.


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