Short sellers and investors who have attacked the company have been cited as one of the reasons why Musk launched his take Tesla private bid.
In a significant development, Tesla Inc’s CEO Elon Musk has stated, he would listen to shareholder’s concerns and will no longer pursue his $72 billion bid to take the company private.
While the decisions leaves Tesla as a public limited company it nonetheless raises questions regarding its future: investors are have still concerns whether Musk has what it takes to steer the company into profitable zone.
On the upside, the development is a boon to Tesla and Musk since they do not have to fend off a series of investor lawsuits as well as a scrutiny by the U.S. Securities and Exchange Commission into the factual accuracy of Musk’s tweet that funding for the deal was “secured”.
Musk has largely attributed the abandoning of his bid to take Tesla private to feedback and shareholder concerns he received in his bid to take the company private; he also said, the effort proving to be more time-consuming and distracting than he anticipated.
“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’,” wrote Musk in a blog post on Friday.
Musk’s financial plan for taking Tesla private
Earlier this month, Musk, who owns around a fifth of Tesla, said he envisioned taking Tesla private without falling back on the standard method of a leveraged buyout, wherein the remaining shareholders cash out and the deal is funded by taking on new debt.
Rather than go by this standard procedure, Tesla had estimated that two-thirds of Tesla’s shareholders would be agreeable to a “rolling” option wherein they continuing to be stakeholders in the private company, rather than cash out. Thus, the money required to take on additional debt would be significantly reduced.
Tesla has accumulated a debt pile of $11 billion and has a negative cash flow.
While his envisioned method could have potentially worked, Elon said institutional shareholders have explained to him that they have internal compliance issues which limits how much they can invest in a private company. In the circumstance, he felt there was no proven path for most retail investors to own shares were Tesla to go private.
With regard to the involvement of Saudi Arabia’s PIF, although Tesla believed it could help Musk with the much needed cash, sources close to the sovereign wealth fund had however downplayed that prospect.
On Thursday, 6 members of Tesla’s board said in a separate statement that they were informed that Musk was abandoning his take-private bid following which the board disbanded a special committee of three directors it had set up to evaluate any offer that Musk submitted.
“We fully support Elon as he continues to lead the company moving forward,” said the board statement.
Ill wishers and short sellers
While explaining one of the reasons why he chose to take Tesla private, Musk cited short sellers saying “being public means that there are large numbers of people who have the incentive to attack the company.”
Earlier this month, analysts at Citigroup Inc in a research note observed, Tesla’s go-private bid is looking less likely, and “it would be wise for Tesla to at least try to raise significant new equity capital sooner rather than later,” so it can inspire investor confidence.