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Elon Musk tweet could be an attack on short-sellers

Glenn Freeman  |  08 Aug 2018Text size  Decrease  Increase  |  
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Electric car company Tesla CEO, Elon Musk, has tweeted possible plans to remove the company from public ownership, in what Morningstar suggests could be a direct dig at short-sellers.

Proving not only US Presidents can use Twitter to make serious market-moving announcements, in a tweet yesterday he said: "Am considering taking Tesla private at $420. Funding Secured".

He has publicly mused such a move previously, stating in a recent letter that 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".

Elon Musk Tesla

Musk has previously mused publicly about taking Tesla back to a private structure.

Morningstar's David Whiston, senior equity analyst and equity strategist, says he "finds it odd that Musk would disclose that he is considering doing a deal and specifying a price, rather than not saying anything until Tesla actually announces it is going private".

"It is possible that he wants to hurt short sellers of Tesla now. He has been very vocal against them recently, including posting a satire video on Twitter on 5 August."

At $US 420 ($A539) per share, a deal would represent a 22.8 per cent premium to Tesla's closing price on Monday, making it one of the biggest go-private deals, with a price tag of about $US 72 billion.

Trading in the company's shares was halted at $US367.25 on Tuesday, up 7.4 per cent after Musk tweeted earlier he was considering taking the company private. The electric car company had a market value of $US 58 billion as of Monday's close. Musk owns nearly 20 per cent of the company.

AAP reports that Musk is under intense pressure to prove he can deliver consistent production numbers for the Model 3 sedan, Tesla's lowest-priced model and key to Tesla's plans to become a mass-market car-maker.

According to Morningstar's Whiston, a buyout price of $US 420 per share would be for about $US 71.6 billion, based on the July 27 outstanding share count of 170.6 million in the latest filing.

"Though it's unclear if Musk's roughly 22 per cent ownership stake would be part of the deal, or just converted into equity of a new private company.

"If a deal is announced, and we think its execution is more likely than not, we will raise our fair value estimate to the deal price, but for now we are leaving our fair value estimate of $US 179 in place," Whiston says.

He also believes Musk's unprecedented Twitter announcement could be part of a desire push the share price above $420. "Otherwise, we would expect him to simply announce he is considering going private with funding secured, and leave the $420 number out of the tweet."

"We speculate that the funding comes mostly from tech investors, such as possibly SoftBank or Tencent – which bought 5 per cent of Tesla in 2017) – along with sovereign wealth funds, and wealthy Silicon Valley investors," says Whiston.

He also refers to comments Musk made during a November 2017 interview with Rolling Stone magazine: "I wish we could be private with Tesla. It actually makes us less efficient to be a public company".

"We think Musk would prefer to grow the company without having to check in with Wall Street every quarter. He probably instead wants investors who are there for the long run," says Whiston.

 

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Glenn Freeman is senior editor, Morningstar Australia.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is senior editor for Morningstar Australia

© 2019 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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