Elon Musk’s Relationship With Goldman Sachs Goes Back Years

(Bloomberg) -- Goldman Sachs Group Inc. made millions of dollars helping Elon Musk bring Tesla Inc. to the public market. Now, it could stand to make even more advising the electric-car maker’s CEO on how to reverse that decision.

When Musk tweeted late Monday he was “excited to work with” advisers on his plan to take Tesla private, one of the first names he mentioned was Goldman Sachs. The relationship between the billionaire and the bank goes back to at least 2010, when Goldman Sachs led Tesla’s initial public offering. It’s also given Musk hundreds of millions of dollars in personal loans.

Banks often try to latch onto key clients early in hopes of landing the mandate for larger deals later, helping small startups secure funding and pulling in fees for share sales or debt offerings for public companies.

Now, Goldman Sachs is advising Tesla on a much bigger transaction, and one that’s already drawn scrutiny. Musk’s tweet last week that he had “funding secured” to take the company private shocked the market and has drawn a subpoena from the Securities and Exchange Commission, according to a person familiar with the matter. At the time of Musk’s later tweet about working with Goldman Sachs, the firm hadn’t signed an official mandate for the role, people familiar with the matter said Tuesday.

Goldman Sachs confirmed its advisory role on Wednesday, saying it would remove its ratings and price target for the stock.

Tesla’s odds of a successful take-private transaction are less than 50 percent, Sandford C. Bernstein & Co. analyst Toni Sacconaghi wrote in a note to clients Thursday. The company’s lack of cash flow, explosive growth and high capital intensity make it challenging to value, Sacconaghi added.

Share Sales

Goldman Sachs has held the role of lead underwriter on $2.2 billion-worth of Tesla’s public share sales, including the IPO and five follow-on offerings, according to data compiled by Bloomberg. On the only such deal it didn’t lead, a $2.3 billion share offering in 2016, the firm was second to rival Morgan Stanley.

Goldman Sachs also took the lead role on the 2012 IPO and two subsequent share sales for SolarCity Corp., the Musk-backed solar energy company that Tesla acquired in 2016 in a deal valued at about $2 billion.

That means the bank has already made more than $22 million in fees from Tesla share sales over the past eight years, according to Bloomberg calculations. Compensation on a successful take-private deal could be much higher: Jeffrey Nassof, a director at Freeman Consulting Services, estimated last week that banks advising Musk could take home $30 million to $50 million.

Personal Loans

Goldman has also made millions underwriting the company’s debt offerings. It was the lead underwriter of Tesla’s inaugural $1.8 billion junk bond offering last year, though the fees it was paid to place $450 million of the offering weren’t disclosed. It’s also led convertible bond offerings for the company, pocketing $12 million in fees for two deals in 2014.

Musk, a serial entrepreneur who’s co-founded several companies dating back to 1999, has also personally borrowed money from Goldman Sachs over the past seven years, according to filings reviewed by Bloomberg.

Starting in 2011, Goldman Sachs loaned Musk $35 million, Tesla’s 2012 stock prospectus shows. Musk used a portion of the loan to buy shares in the company. Goldman Sachs later extended that credit line by $50 million.

At one point the amount that Musk owed Goldman swelled to $275 million, a filing from 2013 shows. As of March last year he was no longer in debt to the bank, though he still owed about $344 million to Morgan Stanley, according to public documents filed with the Securities and Exchange Commission.

Price Target

The relationship between the billionaire and the bank hasn’t been without scrutiny. Former Goldman analyst Patrick Archambault raised eyebrows in 2016 when he upgraded Tesla shares to a “buy” rating from “neutral” just hours before it was announced that his firm would co-manage with Morgan Stanley a sale of new Tesla stock.

At the time, a spokeswoman for Goldman Sachs said the bank followed all standards and policies with respect to the separation between research and sales.

Goldman Sachs’s current auto analyst David Tamberrino has been more conservative about Tesla’s stock. With shares trading at about $335, his price target -- before the bank went restricted on the shares -- was $210 a share with a “sell” rating.

Goldman also owns almost 1 million shares in Tesla, according to data compiled by Bloomberg. The bank owned almost triple that in the first quarter of 2016.

©2018 Bloomberg L.P.