Tesla board weighs Musk's go-private gambit doubted by the market

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Elon Musk Photographer: David Paul Morris

For the moment, Elon Musk is struggling to overcome his doubters.

Less than 24 hours after stunning Wall Street by tweeting that he might take Tesla Inc. private, six of the company’s directors confirmed that he’d indeed raised the possibility with the board.

But the announcement did little to quiet the growing skepticism surrounding Musk’s proposal. Investors’ initial enthusiasm has already begun to waver, with Tesla shares falling as much as 3.3 percent early Wednesday.

Many questions remain unanswered, including the big one: how would Tesla come up with the money to pull off a deal valuing the unprofitable company at more than $80 billion?

“How could Tesla possibly fund such a large transaction?” said Toni Sacconaghi, an analyst at Bernstein who’s long been bearish on Tesla shares. “If no firmer details emerge,” he wrote in a note to clients, “investors would likely increasingly debate Musk’s credibility and seemingly unhealthy focus on the shares’ price and volatility.”

Tesla shares opened down as much as 3.3 percent Wednesday and dropped 1.3 percent to $374.61 as of 10:45 a.m. in New York. That’s well below the $420 price at which Musk said shareholders would be bought out.

“Last week, Elon opened a discussion with the board about taking the company private,” six directors on Tesla’s nine-member board said in a statement. “The board has met several times over the last week and is taking the appropriate next steps to evaluate this.”

While the board lent credence to the idea that Musk’s tweets Tuesday were more than spur-of-the-moment whims from a notoriously impulsive billionaire, skepticism abounds that he has secured the means to take the electric-car maker private.

The chief executive officer suggested he did in an initial post, but Tesla hasn’t disclosed any sources of financing, and no one has stepped forward publicly to say they’re backing the plan.
The board said only that Musk had “addressed the funding for this to occur.” No bank or investment fund contacted by Bloomberg News thus far has indicated it was aware of Musk’s plan to finance a Tesla buyout.

Names excluded from the board statement were Musk; his brother, Kimbal Musk; and Steve Jurvetson, a venture capitalist and early Tesla backer who’s been on leave since November.

Musk owns an almost 20 percent stake in Tesla, meaning he’d still need roughly $70 billion in financing to take Tesla private. That kind of money may be accessible through sovereign wealth funds or other strategic investors, said Dwight Scott, president of Blackstone Group LP’s GSO Capital Partners. Musk’s money-losing and cash-burning company is an unlikely candidate for debt investors to be willing to help go private.“It’s very hard to put leverage on this company,” due to its negative cash flow and “operational issues,” Scott said Wednesday on Bloomberg Television.

It’s possible Musk could persuade some large institutional and strategic investors to either newly become or remain shareholders in the private company, which could reduce his funding needs, Sacconaghi said.

“What investors are waiting for is more details around what is meant when Elon Musk says funding is secured,” George Galliers, an analyst at Evercore ISI who rates Tesla the equivalent of a hold, said on Bloomberg Television. “They are raising a lot of sensible questions around who would be providing the funding and how exactly this might work.”

Bloomberg News