Tesla's Board Should Explain Its Explanation
(Bloomberg Opinion) -- A mere 20 hours after Elon Musk announced over the tweetwaves that he might take Tesla private, six members of the board weighed in:
Last week, Elon opened a discussion with the board about taking the company private. This included discussion as to how being private could better serve Tesla’s long-term interests, and also addressed the funding for this to occur. The board has met several times over the last week and is taking the appropriate next steps to evaluate this.
That isn’t an excerpt; it’s the whole thing (fun fact: it would fit comfortably inside two tweets). Yet brevity is probably the best strategy at this point. Because if this statement was supposed to allay any concerns about Musk’s bombshell, it is somewhat lacking. Start with the fact that tweet-stock suspension-company announcement-official board statement is the exact opposite of the sequence you would expect for a large, publicly traded company.
As for the statement itself, rather than answer the important questions raised on Tuesday afternoon, it manufactured new ones.
Musk indicated funding had been secured for a take-private deal that, if structured as a straight buyout, would be worth almost $70 billion (including debt and excluding Musk’s own stake). Even a leveraged buyout of that scale would be a colossal undertaking. But given Tesla burns cash and its entire valuation rests on ambitious growth plans requiring billions more of spending, this couldn’t be an LBO; it would have to be just a BO. Plus, Musk apparently wants existing shareholders to have the option of swapping into a private entity (see my colleague Matt Levine’s take on that here).
So we’re talking about a complex buyout requiring tens of billions of new equity and perhaps some special purpose vehicle – with all the legal and financial scrutiny this would entail – and that’s all been discussed in the past week with the board, to the point where Musk felt able to announce it and claim funding had been secured. Got it.
The announcement raises other questions for the board. Did it approve of the CEO putting this announcement out via Twitter during market hours, before the stock’s trading had been suspended and in the absence of any real detail? Sub-question: Was the board even aware this announcement was going out when it did? Tesla hasn’t gotten back to me on those yet, but I’ll update if it does.
Moreover, taking all these statements at face value: If this process is at such an advanced stage that the CEO feels ready to put it out there and claims funding has been secured, has the board found time in the past week to take the obvious step of forming a special committee? If so, that’s not clear from Wednesday’s statement.
Back to timing, though. The board’s discussions with Musk apparently kicked off in the same week Tesla reiterated it is on the cusp of profitability and positive cash flow. This, if it were actually to come to pass, would be the surest defense against skeptics. And yet, less than a week later, the company is considering an ill-defined, multi-billion-dollar take-private proposal as a way to silence them instead. Why?
These are just questions and no doubt rather dry and boring ones. But almost 24 hours into this latest Tesla episode, they need answering urgently.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.
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