(Bloomberg Opinion) -- Six days into Tesla Inc.’s tweetstorm, we’ve reached the valuation-by-semantics stage.
In a blog post Monday morning, CEO Elon Musk wrote he wanted to answer some questions about his surprise announcement last Tuesday regarding taking the company private. But like the board’s belated “ we got this” on Wednesday, Musk’s update lays nothing to rest – and exposes a big risk.
First, the obvious: Why is the world still getting information about the most material of events for Tesla in a piecemeal mix of tweets and blogs rather than a detailed 8-K filing with the SEC?
The bigger issue is the one tackled in a section of Musk’s post titled “Why did I say ‘funding secured’?” Why indeed.
To summarize, Musk claims Saudi Arabia’s sovereign wealth fund has approached him several times since early 2017 on the subject of taking Tesla private. At a meeting on July 31 of this year:
[T]he Managing Director of the fund expressed regret that I had not moved forward previously on a going private transaction with them, and he strongly expressed his support for funding a going private transaction for Tesla at this time. I understood from him that no other decision makers were needed and that they were eager to proceed.
I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving. This is why I referred to “funding secured” in the August 7th announcement.
Better, and more legally astute, minds will no doubt weigh in on this. For me, however – and with apologies – I do not think that phrase he keeps using means what he thinks it means.
Terms like “understood” and “no question” are what you use when you have a good hunch about something but haven’t nailed it down. For example, I “understood” Musk’s original tweet to mean he had gotten firm financing commitments about a take-private transaction – with stuff on paper – but I now have “no question” maybe that isn’t so.
Indeed, Musk undercuts his statement in the very next paragraph (emphasis mine):
He [the managing director of the Saudi Arabian fund] has expressed support for proceeding subject to financial and other due diligence and their internal review process for obtaining approvals. He has also asked for additional details on how the company would be taken private, including any required percentages and any regulatory requirements.
In light of reports that the SEC is looking into the accuracy of this statement among others, this is a problem in itself.
But it’s compounded by the core of Musk’s narrative. In essence, he has handed the reins of this thing over to Saudi Arabia.
Let’s assume Riyadh is considering infusing equity to enable a buyout. There is no clarity on how much would be involved. Musk says it won’t be $70 billion because two-thirds of existing shareholders might swap into less-liquid private shares, according to his “best estimate right now” (see above on word choices).
And while Saudi Arabia is nominally committed to diversifying away from oil, its situation is somewhat fluid. Recall that the central pillar of this strategy was an IPO of the national oil company, which now appears to be taking second place to a reshuffling of the state’s oil and petrochemical assets and an effective dividend recap for the sovereign wealth fund.
A legitimate question in any circumstances is why Saudi Arabia (or any bidder) would commit to pay billions, including a takeover premium, for a minority stake in an unprofitable company and where it might face a national security review?
But you really have to marvel at the leverage that’s been handed to Riyadh by the bizarre way in which this has all gone down. Saudi Arabia now has the ability, if it wants, to hammer Tesla’s credibility, and stock, with little more than a few well-timed leaks indicating a lack of interest. No question.
To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net
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.
©2018 Bloomberg L.P.