Tesla’s board has formed a special committee of independent directors to evaluate founder Elon Musk’s Twitter proposal to take the electric carmaker private, but the company emphasized that it has yet to receive a formal offer.
The three-member panel, composed of Brad Buss, Robyn Denholm, and Linda Johnson Rice, will hire a financial adviser if and when an offer is made, the board said in a regulatory filing Tuesday. Such committees are typically formed to avoid conflicts of interest when a company officer is involved in a transaction. Tesla’s committee has the board’s authorization to review and negotiate alternatives to any proposal, and its approval will be required for any deal.
Musk introduced the possibility of a buyout offer of $420 a share in a Twitter post in early August, then shared further details in an email to company employees and blog posts on Palo Alto, Calif.-based Tesla’s website. He said Monday that Saudi Arabia’s sovereign wealth fund, which holds a 5 percent stake already, has repeatedly recommended taking the company private and is interested in funding the deal.
His understanding from the investor that no other approvals were needed was the basis for his Aug. 7 tweet that funding for the transaction had already been secured, Musk said, a comment that the Wall Street Journal reported had drawn the attention of the Securities and Exchange Commission.
The SEC declined to comment on Tuesday. 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 a.m. to 4 p.m., not on social media.
“I felt it was the right and fair thing to do so that all investors had the same information at the same time,” Musk said on the company’s website Monday. “I will now continue to talk with investors, and I have engaged advisers to investigate a range of potential structures and options. Among other things, this will allow me to obtain a more precise understanding of how many of Tesla’s existing public shareholders would remain shareholders if we became private.”
The proposed $420 offer represented a 23 percent premium to Tesla’s Aug. 6 price of $341.99, but it raised eyebrows since the number is also a euphemism for marijuana smoking. Tesla soared 11 percent in the immediate aftermath of Musk’s tweets, reaching $379.57, but has since given up much of those gains.
“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,” Colin Langan, an anayst with Swiss lender UBS, said afterward.
The proposal would be worth $88 billion, and even if both Musk and Chinese investor Tencent retained their stakes, the cost would be $71 billion, Langan noted.
Musk said Monday that the actual expense would be lower — perhaps about $23.6 billion — since the $420-a-share figure would be paid only to the 33 percent of shareholders he estimates wouldn’t remain with the private company. He’s working with financial advisers including Goldman Sachs and Silver Lake on the proposal, he said Tuesday on Twitter.
I’m excited to work with Silver Lake and Goldman Sachs as financial advisors, plus Wachtell, Lipton, Rosen & Katz and Munger, Tolles & Olson as legal advisors, on the proposal to take Tesla private
— Elon Musk (@elonmusk) August 14, 2018
Taking Tesla private, Musk has argued, would ease the wild price swings faced by publicly-traded firms and reduce pressure to deliver-short term gains at the expense of longer-term performance.
Tesla has been under pressure to deliver attain profitability and generate cash after losing $1.43 billion, or $8.42 a share, so far this year. Musk recently told investors that he expected to reverse the losses in the three months through September and remain profitable afterward.
