Taking Tesla private is going to be very complicated at best and a complete nonstarter at worst. It's not going to be a fun task for Tesla's legal and financial advisors, unless their idea of fun is a lot of consternation.
The special committee of Tesla's board that has been put in charge of assessing the prospects of going private still hasn't chosen a financial advisor, according to people familiar with the matter. Centerview, Evercore and Lazard have all pitched their services to the board, and a decision should be made soon, said the people, who asked not to be named because the discussions are private. The special committee has retained Latham & Watkins as its legal counsel. Spokespeople for Centerview, Evercore and Lazard declined to comment.
Whichever firm ends up with the responsibility to help Tesla's independent directors assess a take-private is going to have its hands full. Let's briefly lay out the variables.
Who's bankrolling Musk's dream? That continues to be the stumbling point more than a week after Musk tweeted "funding secured."
It's still unknown who is willing to put up billions of dollars to buy out current shareholders at $420 per share. Are these financing sources viable counterparties? What costs will be associated with the financing, and how much more expensive will it be than staying public?
Musk said in a blog post Monday that he had discussions with the Saudi sovereign wealth fund about providing funding to take Tesla private. Musk did not say if the Saudi fund committed money. The Saudi sovereign wealth fund declined to comment.
If the financing isn't there right now, how can an advisor even assess this? It can't. Furthermore, Musk will likely be in deep trouble with the SEC. Federal regulators have already sent subpoenas to Tesla, Charlie Gasparino of Fox Business and other outlets reported Wednesday.
"Musk's only ticket out to avoid civil and enforcement litigation is a successful transaction or a transaction the special committee rejects when fully financed," said Jim Rosener, a partner at Pepper Hamilton who specializes in private equity mergers and acquisitions and corporate finance.
Going private makes little sense for a company that's burning cash quickly and reliant on government grants and subsidies. Will states be as willing to do business with Tesla if it's a cash-burning, leveraged, privatized company with less clarity around its quarter-to-quarter finances? Can it keep filling backlogged orders and maintaining its factories without cheap public equity financing?
All of this must be assessed by advisors and compared with the company's current profile as a publicly traded entity. Tesla shares have more than doubled since November 2013. Public markets haven't stymied the company, even if short selling puts future valuation in jeopardy.
It's possible Tesla isn't a viable take-private candidate at $420 per share but could be at a lower per-share price. Again, that will fall on advisors to figure out. A fair value will also have to be assessed by calling other parties, or including a go-shop provision, which would allow outside bidders to challenge Musk and his financiers on their acquisition. When Michael Dell tried to take his company private in 2013, he was challenged by Carl Icahn, who accused him of trying to steal Dell for a low price.
"I agreed with the shareholders that he was not paying a fair price for Dell and that they were getting hosed," Icahn said at the time.
In other words, just because Musk says he will take out shareholders at $420 per share doesn't mean the transaction will get done at $420 per share.
There are all sorts of change-of-control provisions associated with Tesla's bonds. The company could be required to buy back $920 million of bonds at par, or above, if there is a "fundamental change" in the company, which includes the delisting of public shares, according to the FT's Alphaville blog.
It's possible, as the blog notes, that a special-purpose vehicle that maintained some existing ownership could get Tesla out of the woods on "change of control." Yet another task for advisors.
Musk tweeted he envisions a structure where current owners could roll their stakes into a new private company. Nothing like this at this scale has ever been attempted, so there's no clear template to follow. And the SEC has rules that say a public company can't go private if it has more than 300 shareholders.
So there would need to be conditions around who can and can't roll over -- possibly based on how many shares they currently own, said Rosener. This may kill the dream of Elon Musk fans who want to stay investors in a private company.
It's not easy to get government approval for technology deals with international acquirers. Just ask Broadcom and Qualcomm. Reviews by the Committee on Foreign Investment in the United States can doom deals, and it's likely Tesla will need approval from national security officials, as Bloomberg reported Wednesday, to get a deal done.
The Foreign Investment Risk Review Modernization Act (FIRRMA) will make advisors' jobs even more challenging, said Rosener. The CFIUS reform act was recently signed into law by President Donald Trump and further complicates which transactions will be subject to approval.
Despite all of these variables (and likely several more), a seasoned advisory firm can probably put together a structure that will be considered by the board, especially if Musk can tap billions from Saudi Arabia's sovereign wealth fund. Bernstein analyst Toni Sacconaghi Jr. said in a note to clients Thursday that he placed odds of a take-private at less than 50 percent.
Still, at those odds, to quote Jim Carrey in the movie "Dumb and Dumber," "you're telling me there's a chance." And with all of the concerns surrounding Musk and corporate governance, getting out of the public markets -- even with all of the above questions -- might not be such a bad thing anymore.