What could make the stock price of a $50+ billion company jump by over 10%?
The answer is offer to take it private at a huge premium.
This is exactly what Elon Musk did today.
After it was revealed that a Saudi Sovereign Fund invested $2 billion in Tesla, Musk tweeted out that he wanted to take the company private at a price of $420.
This sent the stock soaring until the SEC shut down trading for an hour. When it reopened at 3:45, the price jumped over $380 before closing just a few dollars off the high.
At the $420 price tag that Musk tweeted, it would mean the buyout amounts to $70 billion, by far the largest in United States history. This deal would be twice the size of the next largest deal.
Musk claiming the funding is secured really sent people into a frenzy. This was something completely out of left field and, if Musk is being honest, shows major steps were taken and this tweet isn't something off the cuff.
This was further verified by an email that was released that Musk sent to Tesla employees. In it, he detailed his reasoning why he feels that Tesla would be better off as a private company. Some of the highlights:
- Wall Street is focused upon quarterly results, often to the detriment to long term success.
- It would eliminate the shorting of the stock, something Musk believes gives people incentive to attack the company.
- Employees would perform better since a public stock can be volatile which puts employees, who own shares and options, on an emotional roller coaster.
Musk also stated that shareholders would not be abandoned. Tesla stock holders would have the choice to sell out at $420 or invest in the private company. This is how SpaceX, another one of Musk's companies, is set up.
To complete the odd day, Musk did leave the door open for Tesla becoming a publicly traded company at some point if it does go private. In the email he wrote:
In the future, once Tesla enters a phase of slower, more predictable growth, it will likely make sense to return to the public markets,” he wrote. “I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible.
The next few days are going to have people looking at a series of questions. Many believe Musk broke laws by tweeting out this information as opposed to going through proper channels. This could be deemed a violation of Securities laws.
At the center of this is going to be if the financing is in place. Some feel that if Musk has the financing lined up, then the SEC will not do anything. However, if Elon meant to play a joke, this could get nasty for him. The stock certainly responded to his tweet giving the regulators cause to believe, if all of this is a farce, that manipulation took place.
Finally, who has $70 billion laying around? If there were talks and someone did agree to back this deal, it is a fairly heavy player.
With all the eyes on this, it is going to be difficult for that entity to remain private for too long.