Elon Musk said he is considering taking Tesla private in a radical step that would ease pressure on the money-losing car maker.
The announcement, made via Twitter, surprised investors and sent Tesla’s stock price soaring as much as 8.5 per cent before trading was halted. It followed the news that Saudi Arabia’s sovereign wealth fund had built a less than 5 per cent stake in Tesla worth about $2 billion.
And yet it also left many questions unanswered, namely how Mr Musk would be able to come up with more than $50bn to buy out other shareholders. Factoring in about $8.8bn of debt, it would be the largest leveraged buyout in history, surpassing the Texas electric utility TXU in 2007. At $420 a share, Mr Musk’s offer would value Tesla at about $82bn including debt.
The Public Investment Fund, or PIF, acquired shares in Tesla over the last few months as part of its wider investment strategy, according to a person familiar with the transaction. Representatives for the Saudi fund weren't immediately available for comment on the investment, which The Financial Times first reported earlier on Tuesday. A Tesla spokesman declined to comment.
Mr Musk, 47, has a long history of bristling at the amount of scrutiny Tesla endures from investors and media. In an interview with Bloomberg News in January 2015, he spoke of the benefits of running his closely held rocket company Space Exploration Technologies, and his frustrations with having taken Tesla public in June 2010.
“There’s a lot of noise that surrounds a public company and people are constantly commenting on the share price and value,” Mr Musk said in 2015. “Being public definitely increases the management overhead for any given enterprise.”
Taking Tesla private “makes a tonne of sense,” said Gene Munster, a managing partner at venture capital company Loup Ventures.
“Elon Musk does not want to run public companies,” Mr Munster said. “His missions are big and make it difficult to accommodate investors' quarterly expectations. Our guess is there is a 1 in 3 chance he can actually pull this off."
Tesla shares were halted at 2.08pm and were trading up 7.4 per cent to $367.25. The rally falling well short of $420 is a sign of market scepticism about the possibility of Mr Musk taking the company private.
Reaction in Tesla debt and derivatives also was muted, with the company’s 5.3 per cent bond jumping 0.875 cent to 92.375 cents on the dollar about a minute after Mr Musk tweeted.
“I’d like to see where they’re going to come up with the money for that,” Sam Abuelsamid, a senior analyst at Navigant Research, said of Mr Musk taking Tesla private. “I can certainly understand why he would want to do that, given the complaints he’s had in the past year with short sellers and people betting against the company. So he certainly has good reason to want to take it private from a personal perspective. I’m not sure where he’s going to come up with the cash.”