Tesla shares dip after Elon Musk proposes going private

09 August, 2018, 02:02 | Author: Elaine Woods
  • CEO and lead designer at SpaceX and co-founder of Tesla speaks at the International Space Station Research and Development Conference in Washington

Board members at Tesla are evaluating CEO and Chairman Elon Musk's $72 billion proposal to take the electric vehicle and solar panel maker private.

In a note to clients, Morgan Stanley analyst Adam Jonas said Musk's strategy to reveal the offer on Twitter might end up costing him in higher costs and financial risk. Musk tweeted on Tuesday that he was considering a buyout plan at $420 per share, or 22% above Tesla's opening price that day and still almost 14% more than its opening quote on Wednesday.

The eccentric Musk announced the bombshell move Tuesday on Twitter, writing that he had secured funding to buy Tesla Inc.'s shares at $420 each. The stock ended Tuesday just under $380-up a total of 11 percent for the day. These analysts have an average price target on the stock of $321.89, which implies almost 14% downside from current levels.

But the most important question, Sjostrom said, is whether Musk's tweet is true or not.

But his nine-word tweet during the middle of trading Tuesday - "Am considering taking Tesla private at $420". "He has done enough things that might warrant somebody taking a close look", Pitt said.

FILE PHOTO: Elon Musk, founder, CEO and lead designer at SpaceX and co-founder of Tesla, speaks at the International Space Station Research and Development Conference in Washington, U.S., July 19, 2017.

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"First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best". "As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla".

Some Wall Street analysts were skeptical of Musk's ability to gather the huge financial backing to complete such a deal, given that Tesla loses money, has $10.9 billion (8.5 billion pounds) of debt and its bonds are rated junk by credit ratings agencies.

It's also unclear how Musk came up with the $420 price.

Musk, his brother Kimbal and director Steve Jurvetson were not included in the statement from members Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice, and James Murdoch.

But if the buyout flops, Musk and Tesla will likely face class-action lawsuits from shareholders alleging they were duped, and potential legal trouble from the Securities and Exchange Commission, too. The move would also foreclose the option of selling more stock to raise cash every year, a move which Musk has disfavored in recent years. The SEC declined to comment.

If Musk's tweet was indeed not a joke, another problem is that it could have been illegal.

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