Wall Street Journal
Elon Musk Met With Saudi Fund About Taking Tesla Private
In a blog post, Musk said he believes two-thirds of current shareholders would remain with the company
By Tim Higgins and Summer Said
Monday, August 13, 2018
Elon Musk said Saudi Arabia’s sovereign-wealth fund has approached him several times over nearly two years about providing financial support to take Tesla Inc. TSLA +0.68%private, as the chief executive sought to address questions after he tweeted last week that he had secured funding for a possible deal.
Mr. Musk in a blog post Monday also said he believed enough shareholders would be willing to hold on to their stakes that he wouldn’t have to borrow heavily to fund a buyout.
The chief executive, who owns roughly 20% of Tesla, is facing criticism on Wall Street for sending tweets last week that Tesla would go private at $420 a share, and that he had “funding secured.” Monday’s blog post still leaves more questions about how he would execute the undertaking.
Mr. Musk said his “funding secured” announcement came after meeting with the Saudi Arabian sovereign-wealth fund. He said the Saudi fund approached him multiple times about going private starting almost two years ago, and that he left a July 31 meeting with the fund’s managing director believing the fund was eager to proceed.
“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,” Mr. Musk wrote. “This is why I referred to ‘funding secured’ in the August 7th announcement.”
Mr. Musk said he continues to have discussions with the fund as well as with a number of other investors.
A person familiar with the Saudi fund, called the Public Investment Fund, cautioned that while discussions have taken place, the fund hasn’t made a detailed proposal, in part because of questions centering on its potential rights as a foreign investor.
Many obstacles remain to a deal, the person said, including the likely opposition of some top officials and the difficulty of embarking on any major new investment project. But a deal could still happen if it has the backing of Prince Mohammed bin Salman and the PIF, the person said.
A spokesman for the PIF declined to comment. Representatives for the Saudi government couldn’t immediately be reached for comment.
Mr. Musk and Tesla insiders together own just over 25% of the company, according to FactSet. Just over 12% of Tesla’s investors are individuals and others. The remaining 62.2% of shares are held by institutions led by T. Rowe Price Associates Inc., Fidelity and Baillie Gifford & Co.
The Monday statement follows a turbulent week for Tesla. Mr. Musk shocked investors with his tweets about taking the auto maker private at $420 a share, which would value it at more than $70 billion. He later told employees no final decision had been made, but that going private would help Tesla avoid the distractions of being publicly traded.
In his Monday statement, Mr. Musk said reports that more than $70 billion would be needed to take Tesla private “dramatically overstate the actual capital raise needed.”
While it isn’t yet clear exactly how a going-private deal would be structured, Mr. Musk might have to find a way around regulatory limits on shareholders in privately held companies.
In his blog post, Mr. Musk said it was his “best estimate” that about two-thirds of all shares owned by current investors would be rolled over into a private Tesla. But under securities rules, companies must have their securities registered with the Securities and Exchange Commission if they have more than 500 “nonaccredited” investors—individual investors below certain income and wealth thresholds—as shareholders of record.
In addition, a public company can’t go private and end its securities registration and SEC filing obligations if it has more than 300 shareholders.
Tesla had 1,156 shareholders of record as of Jan. 31, according to its annual report, along with many more shareholders whose shares are held in “street name” by banks or brokerages. Mr. Musk said last week his potential going-private deal would involve a “special purpose fund” that would enable current shareholders to remain invested in Tesla.
In his blog post, Mr. Musk said full details of the plan still need to be provided before anyone can be asked to decide on the matter, including how the move would be structured and what source of funding would be used. He said it would be “premature” to ask shareholders to decide now.
Mr. Musk had come under scrutiny for raising the possibility of going private without providing details. The Securities and Exchange Commission is inquiring about Mr. Musk’s tweets, The Wall Street Journal reported.
On Monday, Mr. Musk tried to clarify some of his thinking behind the tweets.
“The only way I could have meaningful discussions with our largest shareholders was to be completely forthcoming with them about my desire to take the company private,” Mr. Musk wrote. “However, it wouldn’t be right to share information about going private with just our largest investors without sharing the same information with all investors at the same time.”
Mr. Musk wrote that the Saudi fund has been interested in diversifying away from oil. He said the Saudi fund asked for another meeting after taking a near 5% stake in Tesla. It was during that July 31 meeting, Mr. Musk said, the managing director of the Saudi fund “expressed regret” he had not taken up the fund’s offer to go private.
“He strongly expressed his support for funding a going private transaction for Tesla at this time,” Mr. Musk said. “I understood from him that no other decision makers were needed and that they were eager to proceed.”
The idea to take Tesla private comes after the company faced months of scrutiny over missing self-imposed deadlines to ramp up production of the Model 3 sedan, and over the impact the delays have had on Tesla’s dwindling cash position.
Mr. Musk has resisted the notion Tesla needs to raise more money and has said the company can turn a profit this quarter and next now that its factory has reached a rate of building 5,000 Model 3s in a week.
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In his blog post, Mr. Musk said it would be unwise for Tesla take on significant debt as part of the go-private plan.
“It is also worth clarifying that most of the capital required for going private would be funded by equity rather than debt, meaning that this would not be like a standard leveraged buyout structure commonly used when companies are taken private,” he wrote.