After sending Tesla stock on a 20-day roller coaster ride, Elon Musk decided that his electric car company is better off staying public.
In a blog post on Tesla’s website late Friday, Musk announced that he had put the plan to take Tesla private on hold after spending “considerable time” consulting with potential buyers as well as current shareholders large and small.
“Given the feedback I’ve received, it’s apparent that most of Tesla’s existing shareholders believe we are better off as a public company,” he wrote. “Although the majority of shareholders I spoke to said they would remain with Tesla if we went private, the sentiment, in a nutshell, was ‘please don’t do this.'”
But Musk wanted to make it clear that it wasn’t about the money.
He said that his “belief that there is more than enough funding to take Tesla private was reinforced” during his recent discussions with Wall Street buyout experts like Silver Lake, Goldman Sachs and Morgan Stanley.
Instead, what broke the deal was an overly complicated process to execute the buyout.
“I knew the process of going private would be challenging, but it’s clear that it would be even more time-consuming and distracting than initially anticipated,” he explained. “A number of institutional shareholders have explained that they have internal compliance issues that limit how much they can invest in a private company. There is also no proven path for most retail investors to own shares if we were private.”
However, that rationale didn’t seem to please Tesla investors very much. On Monday morning, Tesla shares fell to its seven-day low of $310, continuing a downward trend since Musk tweeted the go-private plan on August 7. Tesla stock price is now seven percent lower than its pre-Musk-tweet level and 25 percent lower than the price at which Musk had promised to buy out shares.
Musk initially proposed a plan to roll over current shareholders’ stakes to a private ownership via a special structure, which would avoid the need to solicit tens of billions of dollars in new cash. However, as Wall Street analysts pointed out shortly after the go-private tweet, Musk’s proposal would have little chance to materialize under current SEC rules.
Tesla’s largest shareholder, next to Musk himself, T. Rowe Price, owns nine percent of the company mostly through mutual funds. Under SEC laws, these funds are subject to the same disclosure rules as public companies. Retail shareholders are also prohibited from transferring their investments in a public company to a private structure unless they are qualified to do so by the SEC.
“The practical issue with what Elon suggested [on August 7] is that the significant majority of Tesla’s public shareholders would be forbidden from owning a private offering from Tesla,” John Thaler, founder of JAT Capital Management, a multibillion-dollar global equity investment firm, told Observer earlier this month.
With the privatization plan on hold, Musk said he will shift his focus back on ramping up Model 3 production and making Tesla profitable. And keep answering analysts’ annoying questions every three months, inevitably.
