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Tesla: tweet “considering” buyout at $420/share

August 7, 2018

I hate to keep getting into this but hoo boy. Mother of all share buybacks, no?

I don’t see why any and all shareholders shouldn’t hit a bid of $420. Question is how many of them will actually have the opportunity to actually do so. I very much doubt there’s a lender who is going to finance the full $50+ billion to buy out everyone other than Musk.  It’ll be some smaller amount.

I think what’s going to happen is that the shareholders will vote on whether or not to accept some kind of elaborate scheme.

One possibility is that a lender is willing to fund $X billion of buyout, and if everyone not taking that option, (or 75% of everyone else or something like that) agrees to exchange their NASDAQ:TSLA shares (and the rights and protections the NASDAQ exchange gives them), for private shares where they have probably fewer rights but get something else to sweeten the deal – if enough agree to that rather than the $420, then the deal happens. If not enough agree and the $X billion isn’t enough for the holdouts, then it doesn’t happen, and the whole thing was a technically-legal temporary boost to the stock price (and some serious revenge on anyone betting against the company via short sales).

Another possibility is that if you have 10 shares, you get $420 each for like 5 of them and then your other 5 shares turn into share of the new non-public company. Presumably the lender, who also happens to be a major shareholder, gets a more favorable exchange ratio there? Just idle speculation. Devil’s in the details.

As far as a hype-to-get-the-stock-up-scheme, it only has to be a “good faith effort”, even if the deal is a longshot at best.

If dragged out long enough, this could perhaps also be conveniently timed to meet the conditions for the ~$360 conversion option on some of the bonds, starting with the 3/1/2019 0.25% issue. We’ll find out around the end of the year probably (the conditions for the conversion are a little convoluted but in any case it can be done after Dec 1st 2018 if not sooner).

One thing it isn’t going to do is help the financial health of the business. After an LBO, the resulting company ends up being on the hook for all the $$ that was paid out to make the deal happen in the first place. If it feels like it doesn’t add up what’ll happen is one group of shareholders (or bondholders etc) will find a way to get paid while leaving another group out in the cold.


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One Comment
  1. Again, a very well-informed analysis.

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