Tesla Inc CEO, Elon Musk, announced on Twitter on Tuesday that he was considering taking Tesla private for $420 per share, or $72 billion (£55.65 billion), in what would be the biggest deal of this kind. He said the funding for the deal was secured, but did not provide details. Tesla shares ended up 11 percent at $379.57, indicating investors gave some credence to the plan.
The company’s stock halted trading for 90 minutes before an official statement was announced.
“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,” said Musk in the statement.
The CEO also explained several of the constraints he faced when running Tesla as a public company.
“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,” he said.
“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,” he added.
Tesla is also the most shorted stock in history, which exposes it to attacks from large number of investors, Musk said.
He added in a tweet after the statement that investor support for the plan “is confirmed,” and that the only reason the decision is not certain yet is that it would be contingent on a shareholder vote.
Shares of Tesla soared 10.99 percent to close at 379.57 US dollars per share on Tuesday.
Listed in 2010, Tesla’s current market value is 64 billion US dollars. At a share price of 420 US dollars, the company would be worth 71 billion US dollars.
Finding equity partners and bank financing is key to take-private deals. When Michael Dell took his eponymous computer maker private for $24.9 billion in 2013, for example, he brought in buyout firm Silver Lake that contributed $1.4 billion in equity, raised more than $10 billion in bank debt, and received a $2 billion loan from Microsoft Corp.
When a Twitter user commented on Musk’s proposed deal by posting “Just like Dell did. It saves a lot of headaches”, Musk responded by tweeting “Yes”.
Dell’s take-private deal, however, may not be possible to replicate with Tesla, which has a $10.9 billion debt pile, is losing money, and whose bonds are rated junk by credit ratings agencies. Without the ability to add more debt, Musk may have to turn to sources of capital that are less accustomed to using debt to juice returns in the way private equity firms are.
Musk has said he would be looking to keep his ownership of Tesla at around 20 percent and that a special purpose vehicle, like the one that exists at his aerospace company SpaceX, would allow Tesla shareholders to remain invested if they so choose, and then cash out when they wanted.
But sources familiar with SpaceX told Reuters it is not clear how Musk would apply it to Tesla. Fidelity Investments, the major backer of SpaceX, did not invest in it through a special purpose vehicle, according to the sources.
SpaceX only has a limited number of shareholders, who often choose to sell on their shares in the private market.
By contrast, allowing thousands of Tesla shareholders to remain invested through a special purpose vehicle would essentially mean that shares in that new vehicle are publicly traded in some way.
Even if such a deal was cobbled together, it is not clear whether so-called “liquidity events”, that Musk said he organises at SpaceX every six months, would be sufficient for all existing Tesla investors to cash out.
Many attempts by founders and top executives to take their companies private have never come to fruition. In March, Qualcomm Inc Chairman Paul Jacobs stepped down from the board to pursue a long-shot take-private bid for the U.S. chip maker, which has a market capitalization of $93 billion. To date, this bid has not materialized.
U.S. department store operator Nordstrom Inc attempt to go private also failed earlier this year, after banks balked at providing the necessary financing to the founding family members seeking to put together the deal.
Meanwhile, Tesla has started hiring for its new Shanghai factory, according to job postings on its website, just a month after the U.S. electric vehicle maker signed agreements with local authorities for the $2 billion project.
The automaker’s website showed it is looking to fill 14 roles including architectural designer and senior finance manager. Most of the positions are senior in level and require at least six years’ experience, the job descriptions showed.
Tesla did not respond to Reuters’ requests for comment. The Herald newspaper, which reported the job postings on Tuesday, said Tesla began advertising the roles on Sunday.
Tesla last month signed agreements with Shanghai authorities to build its first factory outside the United States, which would double the size of the EV maker’s global manufacturing.
Chief Executive Elon Musk on an earnings call this month said the factory would cost around $2 billion and that the EV maker planned to fund the project with local debt.
Tesla has said it wants to produce the first cars at the plant about two years after construction begins, reaching as many as 500,000 vehicles a year about two to three years later.