Tesla’s share trading had been suspended on last Monday for one hour, as the share price jumped by 11% to $ 382. The reason was the announcement by E. Musk about a possible withdrawal of Tesla’s shares from the market.
E. Musk has set the price to $ 420 per share, for which he would withdraw shares from the market. This price is equivalent to a 20% premium compared to the price after Q2 2018 announcement. E. Musk has so far stated that it is a consideration that he is not yet 100% determined about. This corresponds to Monday’s closing price $ 382. The reason for this is the great volatility of the company’s stock price, which affects the actual operation. Withdrawal of shares from the market would solve the volatility factor. It would be on each investor, whether he will sell his shares for $ 420 per share or keep holding a stake in the company without publicly traded shares. A disadvantage for investors would be a loss of liquidity.
How much would cost Tesla buy back?
There are 127.5 million publicly traded shares. A total of $ 53.5 billion would be needed to buy all of them. According to the existing indications, this would be the so-called leveraged buyout (LBO), ie the purchase of shares thanks to a loan. This would be the biggest LBO in the history. Of course, the more investors keep their shares, the less funding will be needed. Therefore, his efforts will be to convince as many investors as possible to keep their shares. E. Musk does not plan to significantly increase his share, which oscillates about 20 percent.
He said that Tesla and Space X will continue to function as separate entities with their own management and investor structure. However, he did not mention the future financing of Tesla’s operation, which is not yet possible from its own cash flow.
PS: Similarly, five years ago Michael Dell applied to his company the withdrawal of the Dell shares from the market. Now he is talking about re-launching these shares through a special transaction.
Who will sponsor Tesla share buyout?
There are several variants:
- Japanese Veture Capital SoftBank
- Chinese Tencent
- Sovereign Wealth funds of some countries – most often speculated is Saudi Arabia.
There are also several private investors including the largest banks or mutual funds. The funds Fidelity and T Rowe Price together hold one sixth of the stake in the company. Together with third biggest fund Scottish Mortgage, they are holding nearly 20% of shares. If these funds would keep their shares even after the shares were withdrawn from the stock exchange, they would have helped significantly reduce the capital needed to buyout shares.
Already, some facts are being revealed which are questioning this decision.
1 The price is relatively high. Is he trying to prevent a drop of the share price?
2 He didn´t like the by analysts’ questions about the recent announcement of Tesla’s results when E. Musk did not keep his nerves and refused to answer?
- Why did he choose a tweet form for notification?
- Musk completely underestimated the legal aspect of the whole thing. He was obliged to inform the SEC about this fact when he began to think about it. He did not. The SEC began to investigate him promptly.
- China’s customs duties will hit every fifth car sold
- Musk is trying to maintain total control. He approves any expense over $ 1 million. This may seem sufficient, but this limit is 0.25 per thousand from quarterly turnover. When compared to a family, this is roughly the same case as if you had to agree each expense over about 2 dollar.