August 13, 2018

Tesla is probably not going private

Tesla CEO Elon Musk recently announced plans to take the company private at $420 per share. Doug Kass thinks that is not going to happen because of several reasons as outlined in a recent article.

"To begin with, Elon Musk has a unique sense of humor. The number 420, or 4:20 or 4/20 is a code-term in cannabis culture that refers to the consumption of cannabis.

The company’s fundamentals and balance sheet do not support a leveraged transaction. A LBO is not financeable in the current market and this is the least demanding market in history for financing. Tesla is losing money, has large capital spending requirements, is bleeding cash, has meaningful contingent product liability risks and already has $9 billion of net debt.

The only way the LBO could be done is if several large strategic buyers lost their collective minds and invested in the transaction. 

There was no mention of investment banking advisors or outside legal counsel in the Tesla statement. This makes me suspect of the proposed transaction. 

Musk recently purchased stock in the open market. I presume Musk has been thinking about a going private deal for some time, which raises potential legal (SEC) problems.

Not only do I believe there will be no going private transaction but I suspect Musk has gone too far with his tweets and will likely pay a legal toll for it."

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