Investment Banks line up to Take Tesla Private

tesla fremont factory

Morgan Stanley has followed Goldman Sachs footsteps and dropped its ratings coverage on Tesla. Though there is no official information from Morgan Stanley on why the bank is no longer providing equity coverage on Tesla stock, its not that hard to guess the reason. Morgan Stanley may be gearing up to advice Tesla.

It was bit of surprise when Elon Musk announced via twitter that he had lined up Silver Lake and Goldman Sachs as his financial advisors. Because I was thinking Elon Musk would prefer Morgan Stanley over Goldman Sachs.

Two reasons: Elon Musk was unhappy about Goldman’s coverage on Tesla and Morgan Stanley was number one in M&A in 2018.

According to an email Elon Musk sent to Tesla employees before second quarter earnings call, Tesla CEO linked to a CNBC report of a note from Goldman Sachs analyst David Tamberrino and added that “They are in for a rude awakening :)”. Musk was unhappy about David Tamberrino’s bearish stance on Tesla and also his prediction that Tesla will deliver way less than 28,500 Model 3s during the second quarter.

It was natural for Elon Musk to pick one of Tesla’s IPO underwriters – Goldman Sachs, Morgan Stanley, JP Morgan and Deutsche Bank Securities.

If Musk didn’t want Goldman, the obvious choice was Morgan Stanley as the investment bank took the number one spot in Mergers and Acquisitions this year, beating arch rival Goldman Sachs.

“Goldman Sachs saw its global market share of M&A revenue increase by 4% during the first six months of 2018 but still lost its top ranking to Morgan Stanley, which boosted its market share by nearly 14%.

In the U.S., where Goldman Sachs increased its market share by a respectable 3.8% compared to a year ago. The only problem is that its closest competition, Morgan Stanley and J.P. Morgan, saw a 16.5% and 14.1% jump, respectively. Like in the global rankings, Goldman dropped from first last year to second for the first six months of this year, again behind Morgan Stanley.”

But I am still not very sure if Morgan Stanley is advising Elon Musk. It’s quite possible for Tesla board to have hired them. Because they need a financial advisor to review the proposal from Elon Musk and his supporters to buy Tesla.

Tesla’s board announced last week that it has formed a special committee to evaluate CEO Elon Musk’s proposal to go private. The special committee composed of independent board members Brad Buss, Robyn Denholm and Linda Johnson Rice, said that it has “retained Latham & Watkins LLP as its legal counsel and intends to retain an independent financial advisor to assist in its review of a formal proposal once received. ”

That advisor spot is still empty and it could be Morgan Stanley.