Reports have emerged over the past day that Tesla CEO Elon Musk and the Board of Directors will meet with the Securities and Exchange Commission (SEC) as soon as the week of August 20, 2018. The focal point of the meeting is likely to be Musk’s surprise announcement last week of plans to take Tesla private by offering $420 per share to existing investors who are ready to cash out.
The SEC’s intention may not be to reprimand Musk for making a market-moving statement on Twitter, which he is allowed to do. The discussion will most likely center on a possible deal, and whether Musk acted in accordance with regulatory mandates – specifically, they might be seeking evidence that Musk’s “funding secured” statement was, in fact, true at the time of the message being sent.
Tesla’s board reacted quickly to the message, hiring its own advisory team to work out the details of a possible take-private move. Musk also clarified on Monday that the Managing Director of the Saudi Public Investment Fund had expressed his willingness to fund the move. Indeed, Musk’s words indicated that he was being encouraged to take Tesla private over the past two years.
In a recent interview with the New York Times, Musk painted a weak picture of his personal and professional life, referring to the vendetta-bent TSLA short-sellers pushing a “narrative” of gloom and doom at every turn.
All of these related events have now culminated in the SEC issuing subpoenas to Musk and the board, presumably to help clarify the matter and reveal relevant details about a possible take-private deal being discussed behind closed doors.
The recent news of the upcoming SEC meeting coincided with the stock dipping by as much as 9% during intraday trading on Friday, August 17, 2018. This is almost 10 days after Musk’s tweet sent the stock soaring to nearly $380. This Friday’s close was $305.50.
Why the sudden dip? Retail investors tend to be swayed by the news, and the SEC investigating something is usually seen in a negative light. In this case, however, Musk isn’t being quizzed by the securities watchdog over the tweet itself, but details of the deal, most likely. The market simply reacted to the news with an abundance of caution, which is typical with a volatile stock like TSLA that moves on numbers and news items.
While there’s nothing unusual in the dip, it does make Musk’s offer of $420 that much more attractive. Musk indicated a 20% premium to the recent share price when he quoted that figure. He also said he rounded it off to $420 from $419. That means Musk was referring to a 20% premium over a price in the region of $349 a share. This is where Tesla stock was at around August 2 – five days before the controversial tweet and on the day that Tesla had its Q2 2018 earnings call.
With the current price at $305, that premium looks a lot more attractive to an investor looking to cash out. Moreover, considering market sentiment at this point, Musk painting a picture of gloom at the NYTimes interview will probably make sure the stock stays at that low level.
Things are expected to move fast with the go-private deal. The next hurdle is the shareholder vote, which is now probably the only thing that might prevent Tesla from going private. And with the stock price now almost back to where it was before the Q2 earnings call, the time is right for a shareholder vote.
At a share price of around $300, an offer of $420 would be a 40% premium. Anyone looking to cash out would be more than happy to take the money and run, and it would potentially mean a larger stake for the Saudi sovereign fund to own in a private Tesla. They win, Musk wins and the short sellers are left picking up the pieces. A coup de grace like no other!
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