Tesla CEO Elon Musk has plans to take his car company private, but despite the favorable odds for him to pull Tesla off Nasdaq, it is far from a done deal. Musk put out a tweet on Tuesday saying he had enough funding for the maneuver, thus exciting both shareholders and those who had bet affirmatively on the plan.
Mybookie.ag had the odds of the 47-year-old billionaire taking the company private before 2020 at -200 for yes and +160 for no.
“Am considering taking Tesla private at $420,” Musk tweeted. “Funding secured.”
Musk’s declaration on Twitter gave the yes bettors hope that a deal could be done in less than two years so they can cash their wagers.
Stock Price Jumps
That tweet sent shares of Tesla stock soaring. The stock began the day at $343.84 before the tweet. Afterwards, it went as high as $387.46, settling at $379.57 before Nasdaq suspended trading.
That is still well below the price of $420 shareholders would receive if Musk actually went private. Which is definitely not a given, especially after Musk sent out an email to employees shortly after the announcement.
“The reason for doing this is all about creating the environment for Tesla to operate best,” Musk wrote. “As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders.”
The former creator of PayPal probably got a phone call from an official at the Securities and Exchange Commission. SEC Commissioner Harvey Pitt went on CNBC and questioned whether Musk’s tweet had broken the law.
“(It) might constitute fraud if any of the facts he disclosed are not true,” Pitt said.
Advantages to Privatization
Musk appears to be serious about going private and the move makes sense. Tesla has been a publicly traded company since 2010 and has experienced wild swings in its price. Short sellers, those that make a profit on the speculation of a stock price dropping, have at times negatively affected Tesla’s price.
In July alone, the stock had seen prices of a low of $292 to a high of $360. Musk reasoned that going private would eliminate that practice.
“(Being public) also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term,” Musk said. “Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.”
If the company went private it would be advantageous for several reasons. First it would allow expansion to take place at a time period that doesn’t have to worry about satisfying shareholders. Secondly the company has been spending copious amounts of cash. Musk may need to go through another round of fundraising, which is done much easier through the private sector.
The process is in its infancy, and will take several months to accomplish. Musk even said in his letter to employees that nothing was determined.
“A final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best,” Musk wrote.