Arnon Dror | Tesla to Go Private
The Twitter-verse exploded this week after business magnate Elon Musk tweeted that he plans to take Tesla private. Burdened by Wall Street and Silicon Valley analysts and investors, the famous inventor hopes to change all that by going private. Finance executive Arnon Dror thinks the move as ambitious but doable, especially for an innovative entrepreneur who has a reputation for speaking his mind.
For the small-time investor who may or may not have a few shares of Tesla in his/her portfolio, what does this mean and how does the plan benefit them, if at all? Arnon Dror explains that for a publicly listed company like Tesla, to go private means having to buy back all its shares from investors and stockholders. Image Source: TheVerge
The good news is, Musk proposed buying back the shares at a premium. He offered to buy back each share at $420, 12 percent higher than the spot price when he made the controversial tweets. An investor then has the option to sell his/her shares. Assuming the proposed price pushes through, the investor is guaranteed to make money. However, he may also choose to hold on to his shares, in hopes that the price will go higher than the proposed price — which is contingent on Tesla turning itself around and finally start becoming profitable. Arnon Dror notes that at $420 per share, that would value Tesla at more than $70 billion, an astronomical sum for a company that has $2.2 billion in cash and $9.5 billion in debt.
The debt doesn’t seem to faze Musk however, as he said he has already secured funding for the plan. But there is another obstacle he has yet to work around in: he would need majority approval of shareholders to make it happen. Presently, he owns about a fifth of the company, with around 20%. The next three largest shareholders with a combined 25% stake are investment firms T. Rowe Price, Fidelity and Baillie Gifford.
To Elon Musk’s credit, his other company SpaceX is faring better as a private company. Should Tesla follow the same path, the company can set its sights on long-term goals instead of having to meet quarterly targets to appease Wall Street investors. Arnon Dror adds that Tesla can follow the same structure of SpaceX. It’s a private company that gives investors the opportunity to cash out or buy new stock every six months.
Once Tesla is private, Elon Musk is seen to focus on developing the Tesla Semi truck, a heavy-duty, all-electric truck that can run 300 to 500 miles before being recharged. The company may also invest in its solar roofing line and other products.
Will Tesla really go private? Arnon Dror shares that going private has less to do with debt and more on who Musk must answer to. Known for his larger-than-life character, Musk has never sucked up to the ways of Wall Street. In the end, there’s no saying what is really going on in Elon Musk’s mind, but he’ll be watching the news for more developments nonetheless.