When President Trump broke with White House tradition to make policy via Twitter, the White House declared his tweets to be official statements.
When Tesla Chief Executive Officer Elon Musk turned to the same medium on Tuesday to share plans to take the automaker private, the government had a different attitude: The Securities and Exchange Commission questioned whether the flamboyant manager was serious, the Wall Street Journal reported.
Making the announcement via Twitter in the middle of the day was one red flag; corporations making such announcements typically do so via press release, either before or after the New York Stock Exchange’s regular trading hours of 9:30 to 4 p.m. And then, there was the proposed offer of $420, a number frequently used in pop culture as a euphemism for marijuana.
Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote. https://t.co/bIH4Td5fED
— Elon Musk (@elonmusk) August 7, 2018
That it also represented a 23 percent premium to Twitter’s Monday price of $341.99 drove the shares up 11 percent on Tuesday as investors scrambled to take advantage of a potential windfall. The questions and the fallout since, however, have erased most of the gains. By Thursday afternoon, Tesla had dropped back to $354.78.
“Disclosing news of this nature via Twitter is unprecedented and, according to a former SEC chairman, may constitute fraud if Tesla does not already have the financing lined up,” said Colin Langan, an anayst with Swiss lender UBS. Musk’s proposal would be worth $88 billion, and even if both he and Chinese investor Tencent retained their stakes, the cost would be $71 billion, Langan noted.
“The deal would likely require participation from numerous banks and institutional investors, and we think it likely that news of the deal would have leaked had Tesla already held discussions to secure funding,” he said, suggesting that the tweets may have been a way to change the conversation around the company.
Many of Trump’s Twitter posts have had much the same effect, and Musk has been under pressure to deliver profit and generate cash. Tesla has lost $1.43 billion, or $8.42 a share, so far this year, though the CEO told investors last week that he expected to reverse the losses in the three months through September and remain profitable afterward.
And he maintained in an email to employees that the buyback plan was genuine.
“The reason for doing this is all about creating the environment for Tesla to operate best,” he wrote. Not only can the wild price swings of a publicly-traded company distract employees, executives face pressure to deliver positive numbers when earnings are reported every quarter, even if doing so is harmful in the long term, he said. The automaker’s stock has also been shorted by investors betting the price will drop.
“I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve,” he said in the letter. “My hope is for all shareholders to remain, but if they prefer to be bought out, then this would enable that to happen at a nice premium.”
Six members of Tesla’s board — including James Murdoch, the son of media mogul Rupert Murdoch and chief executive officer of 21st Century Fox — backed Musk up in a statement Wednesday.
“Last week, Elon opened a discussion with the board about taking the company private,” they said. “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.”
[Also read: Twitter CEO Jack Dorsey won’t ‘succumb’ to outside pressure, ban Alex Jones and InfoWars]
