I don’t need to remind you about the wildest of drama which played out on Tesla (TSLA) CEO Elon Musk’s Twitter feed in the most recent market cycle. It all started with this: Elon Musk on Twitter.
It almost goes without saying that this is the strangest and most incomplete of ways to start a buyout offer. There are simply so many baffling circumstances where all we can do is to ask some very important questions, as to how this purported “deal” came to be:
Question 1: When did Elon contemplate this transaction?
One might wonder how long it takes for a $75 billion (plus or minus, depending on the structure) deal to come together? Considering that this would be the largest buyout deal in corporate history, there must have been hundreds of bankers and lawyers negotiating complex legal structures with great intensity for a long time. For the funding to be “secured” there must be a written commitment with proof of funds.
Question 2: How does the timing relate to Elon Musk’s stock purchases?
This is presumably only a formality, but let’s ask the question anyway: Can we assume that there's nothing that indicates that a buyout was Elon Musk’s mind when he purchased Tesla stock in the open market as reported on June 13? - Elon Musk buys 72,500 shares of Tesla. He didn’t have a meeting with the person or entity ponying up the cash for this buyout, in the days, weeks and months before June 13, right? Right?
Question 3: Who knew about this deal, and when?
Aside from potentially hundreds of bankers and lawyers, when did any one or several of Tesla’s board members learn about this deal? Did they agree to Elon informing the world by way of a tweetstorm?
Question 4: “Funding secured” -- Show us the money
A buyout offer of a publicly traded company is not a trivial matter. As a CEO - especially a CEO with such a large equity stake and control of the board of directors - you should not “bluff” about such a serious matter. If you say “funding secured” - you had better show proof of funds and a term sheet. This goes if you buy something far lesser - say, a $75,000 house -- and it would be much more important if you say you’ve got $75 billion to buy a publicly-traded company.
Question 5: What did the Board’s Independent Special Committee say?
When you’re launching a buyout of this nature, the board of directors normally form an Independent Special Committee. It's supposed to act in the interest of the other shareholders. This is one of the most serious roles of directors of public company boards. Thus far, there is no such statement - even a preliminary one - from the board and any Independent Special Committee that it may or may not yet have formed.
Question 6: Debt vs. equity
This may be a relative technicality, but for a company that has been losing money eight quarters in a row, taking on debt is not really a sound option. A “buyout” would have to essentially not only take over the existing equity, but also take out at least some of the current debt. This could not really be a “leveraged” transaction, such as what typically happens when there's a buyout of a profitable company with solid cash flows.
Conclusion: So far, we know just about nothing.
In this most unusual of events, let’s step back for a minute and realize that we really don’t know anything:
We don’t know who the buyer is.
We don’t know about the buyer’s financing.
We have not seen a letter of intent, let alone a contract and a structure.
We don’t know what legal due diligence has been done.
By the time this article has made it from my desk to you reading this, perhaps we will have learned the answers to some or all of these questions. Or not.
If, in the end, no buyout happens, one must really ask: Was this a distraction? If so, away from what?
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in TSLA over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: At the time of submitting this article for publication, the author had no positions in the companies mentioned. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.
