Electric car maker Tesla, Inc. (TSLA) said Tuesday that its board of directors has formed a special committee to evaluate CEO Elon Musk’s previously announced consideration of a transaction to take the company private.
Tesla said that the special committee, comprised of three independent directors, has not yet received a formal proposal from Musk regarding any going private transaction. It has also not reached any conclusion as to the advisability or feasibility of such a transaction.
The special committee – composed of Brad Buss, Robyn Denholm and Linda Johnson Rice – has retained Latham & Watkins LLP as its legal counsel. It also plans to retain an independent financial advisor to assist reviewing a formal proposal once received.
Tesla has separately retained Wilson Sonsini Goodrich & Rosati as its legal counsel in this matter.
Tesla noted that the special committee has the full power and authority to take all actions on behalf of board to evaluate and negotiate a potential going private transaction as well as alternatives to any transaction proposed by Musk.
The special committee’s grant of authority provides that no going private transaction will be consummated without its approval.
On Monday, Musk said on Twitter that he was working with Silver Lake and Goldman Sachs as financial advisors, plus Wachtell, Lipton, Rosen & Katz and Munger, Tolles & Olson as legal advisors, on his proposal to take luxury Electric car maker Tesla, Inc. (TSLA) private.
Clarifying his earlier comment that he already had secured the funding, Musk said in a blog post that the Saudi Arabian sovereign wealth fund has approached him “multiple times” about taking Tesla private.
“I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving. This is why I referred to “funding secured” in the August 7th announcement,” Musk added.
Saudi Arabia’s sovereign wealth fund has reportedly acquired a significant position in Tesla shares. Saudi Arabia’s Public Investment Fund has reportedly bought a 3 percent to 5 percent stake in the electric car maker, worth $1.9 billion to $3.1 billion.
EARLIER : Elon Musk Says Working With Goldman Sachs, Silver Lake To Take Tesla Private
“I’m excited to work with Silver Lake and Goldman Sachs as financial advisors, plus Wachtell, Lipton, Rosen & Katz and Munger, Tolles & Olson as legal advisors, on the proposal to take Tesla private”, Tesla Inc CEO, Elon Musk, announced on Twitter on Monday.
On Monday evening, Mr. Musk took to Twitter again. Signaling that he remained serious about pursuing the potential buyout.
The chief executive of the electric car company said earlier on Monday that the manager of Saudi Arabia’s sovereign wealth fund had voiced support for the company going private several times, including as recently as two weeks ago, but also said that talks continue with the fund and other investors.
Musk said he is also working on figuring out what share of investors will likely roll their stake into a new private company, and by extension exactly how much capital he needs to buy remaining investors out.
The pursuit of a buyout has come at a crucial time for the company, as it struggles to turn out its first mass-market automobile, the Model 3. Tesla has taken on a mounting debt load and has yet to turn an annual profit. And while Mr. Musk has always been synonymous with the brand, he has never been under greater scrutiny.
In the past few months, he has mocked industry analysts for asking “bonehead” questions, pursued online tirades against investors betting against the company’s stock, clashed with a government agency investigating a fatal Tesla crash, and accused a disgruntled employee of sabotage.
Then he suddenly announced the idea of taking the company private.
Musk shocked markets last week with the tweeted announcement that he was considering taking Tesla private for $420 a share, a price that valued Tesla at more than $70 billion, and that he had “funding secured.”
In his blog post on Monday, Mr. Musk said he had notified the Tesla board on Aug. 2, five days before sending out the tweets, that “in my personal capacity, I wanted to take Tesla private at $420 a per share.”
He said that after the board’s outside directors discussed the matter — without the participation of Mr. Musk or his brother, Kimbal Musk, also a board member — the full board agreed to have Mr. Musk discuss the matter with some of the company’s largest shareholders.
Since then, Mr. Musk said, he had stayed in contact with representatives of the Saudi fund, which recently bought a stake of almost 5 percent in Tesla, and had been in touch with other investors.
A Tesla spokesman declined to comment beyond the blog post.
Tesla shares declined on Monday morning, then recovered in the afternoon to end the day 0.3 percent higher at $356.41. It was a far cry from the volatility of last Tuesday, when trading was halted in the confusion that followed Mr. Musk’s initial tweet, eventually closing 11 percent higher on the day.
The Nasdaq exchange, like the rest of Wall Street, seemed to have been stunned by the news. Companies that list on Nasdaq are required to inform the exchange’s market surveillance group at least 10 minutes before the release of news that could have a major effect on shares.
After Mr. Musk’s tweet, however, frenzied trading went on for more than an hour before it was halted pending a fuller announcement from Tesla, which came a half-hour before the market closed.
“As an officer of a public company that was a clearly a market-moving event and he knew or should have known that,” said Laura Unger, a former S.E.C. commissioner, said of Mr. Musk’s initial tweet. “He was at least reckless whether he meant to drive up the price or not. What it does point out is that executives and people in power should be thoughtful about what they tweet. The stakes are high.”
Aside from the scrutiny of market regulators, the frantic Tesla trading after the “funding secured” tweet has also exposed Mr. Musk to shareholder lawsuits. At least two law firms initiated potential class-action lawsuits late last week, saying the Tesla chief had deliberately acted to move the company’s share price without actually having funding in place. Such suits rarely go to trial; more often they are settled.
John Reed Stark, a former longtime lawyer at the S.E.C. who specialized in investigating internet fraud cases, said that commenting online about the prospects of taking the company private was inadvisable at best. But he said that a case of market manipulation would come down to Mr. Musk’s intent.
“These are very difficult cases to prove,” said Mr. Stark, who runs a cybersecurity consulting business.
As it scrambles to ramp up production of the Model 3, Tesla continues to burn cash. Looming in the months ahead are two key bond payments — one in November for $230 million and another early next year for $920 million that analysts believe will be harder for Tesla to make.
The recent rise in Tesla’s stock could make a difference; the company can pay off the second convertible bond with stock rather than cash if its share price is above $360.
Amid all the tension, Tesla has become a target of short sellers — investors who are betting the company’s stock will fall. Mr. Musk has opened feuded with short sellers on Twitter, taunting them when Tesla shares rise and accusing them of spreading negative news to hurt the company.
Shares of Tesla have one of the highest short-interest ratios in the United States stock market — that is, the most investor money betting against the stock, as a percentage of shares available for trading. So when shares rise, as they did after Mr. Musk’s tweet last week, it can cost the skeptics dearly.