Investors to get their say after Musk scuttles Tesla buyout

27 August 2018: Investors on Monday will render their verdict on Tesla Inc (TSLA.O) Chief Executive Elon Musk’s decision to abandon a proposed $72 billion buyout to take the luxury electric car maker private.

Musk said in a blog post late on Friday that his decision to scuttle the proposed deal was motivated in part by existing Tesla shareholders who said they wanted the company to remain publicly-traded.

The trading on Monday will be a test of how investors are taking the demise of the buyout plan, and their views on whether Musk, who owns about a fifth of Tesla, can avoid going back to capital markets to raise more cash.

Tesla’s shares already had fallen nearly 10 percent below their level on Aug. 7, just before Musk tweeted that he had “funding secured” for a buyout at $420 a share.

Investors in Tesla’s bonds and convertible debt also had shown skepticism that the buyout would materialize during the days after that tweet, and a subsequent blog post in which Musk made a case for going private.

With Musk’s idea of a buyout backed by Saudi Arabia’s sovereign wealth fund off the table, investors will focus on Tesla’s efforts to become profitable, the company’s cash reserves and what steps Musk could take to raise fresh capital.

Musk and Tesla also face a series of investor lawsuits and a U.S. Securities and Exchange Commission investigation into the factual accuracy of Musk’s tweet that funding for the buyout deal was “secured.”

Tesla had $2.78 billion in cash at the end of the second quarter, after a record $718 million loss.

In early August, before the buyout plan was made public, Tesla reiterated a forecast that it would achieve a profit in the third and fourth quarters, under normal accounting rules, and Musk said the company would not need to raise more cash. A Tesla spokesman on Sunday referred to those previous comments.

One of Tesla’s biggest challenges is ramping up production of its latest vehicle, the Model 3, which is critical to its profitability goals.

TAPPING CAPITAL MARKETS

Analysts have suggested a capital raise may be required soon to boost investor confidence. Musk and Tesla could hold off on any fundraising plans for the time being, in part tapping capital markets would contradict Musk’s comments about Tesla being adequately funded, investment bankers who are not working for the company said over the weekend.

This week would also be an inopportune time for a capital raising, given that many bankers and investors are away ahead of the Sept. 3 Labor Day holiday.

The high price investors have put on Tesla’s shares has allowed Musk to expand U.S. production, invest in building out a vehicle charging network and start work on new models including a small sport utility vehicle, a new Roadster and a semi-truck even as the company burned cash.

Tesla earlier this year announced plans to build a battery and vehicle assembly complex in China. Musk said earlier this month (AUG) the company’s “default plan” would be to fund that expansion by borrowing money from Chinese banks.