Tesla Inc Chief Executive Elon Musk said late on Friday he would heed shareholder concerns and no longer pursue a $72 billion deal to take the luxury electric car maker private, abandoning an idea that stunned investors and drew regulatory scrutiny.
The decision to leave Tesla as a publicly listed company raises new questions about its future. Tesla shares have been trading well below their Aug. 7 levels, when Musk announced on Twitter that he was considering taking Tesla private for $420 per share, as investors wondered what this meant for Musk's ability to steer the company to profitability.
Musk and Tesla also face a series of investor lawsuits and a U.S. Securities and Exchange Commission investigation into the factual accuracy of Musk's tweet that funding for the deal was "secured."
Musk said on Friday that his belief that there is more than enough funding to take the company private was reinforced during the process, but said he abandoned the bid based on feedback from shareholders and because the effort was proving to be more time-consuming and distracting than anticipated.
"Although the majority of shareholders I spoke to said they would remain with Tesla if we went private, the sentiment, in a nutshell, was 'please don’t do this,'" Musk wrote in a blog post.
Musk, who owns about a fifth of Tesla, said previously that he envisioned taking the company private without the standard method of a leveraged buyout, in which all the other shareholders would cash out and the deal would be funded primarily with new debt.
Musk estimated that two-thirds of Tesla shareholders would have chosen an option of "rolling" their stakes into a private company, rather than cashing out. That would significantly reduce the amount of money needed for the deal and avoid further burdening Tesla, which has a debt pile of $11 billion and negative cash flow.
However, Musk said on Friday that a number of institutional shareholders explained that they have internal compliance issues that limit how much they can invest in a private company. He also said there was no proven path for most retail investors to own shares were Tesla to go private.
That assessment contrasts sharply with an Aug. 7 tweet, when Musk said: "investor support is confirmed," and that the "only reason why this is not certain is that it is contingent on a shareholder vote."
T. Rowe Price Group, Fidelity Investments and Scotland’s Baillie Gifford, which are top Tesla shareholders, declined to comment.
Musk also said previously that Saudi Arabia’s PIF, which invested in Tesla earlier this year with a stake of just under 5 per cent, could help him fund the cash portion of the deal, though sources close to the sovereign wealth fund had played down that prospect. PIF is in talks to invest more than $1 billion in aspiring Tesla rival Lucid Motors Inc, Reuters reported last Sunday.
Musk said on Friday he worked with private equity firm Silver Lake, which previously helped bankroll computer maker Dell Technologies Inc's take-private transaction, as well as investment banks Goldman Sachs Group Inc and Morgan Stanley, on exploring how he could take Tesla private.
Six members of Tesla's board of directors said in a separate statement that they were informed on Thursday by Musk that he was abandoning his take-private bid. The board then disbanded a special committee of three directors it had set up to evaluate any offer that Musk submitted.
"We fully support Elon as he continues to lead the company moving forward," the board said.
However, some corporate governance experts said Musk's handling of the take-private bid could pressure the board to assert its independence and consider ways to rein him in by, for example, bringing in a chief operating officer.
"They have someone in charge who has raised serious doubts in the financial and public community about his ability to take the company forward. This will make it harder to invest" in Tesla, said Charles Elson, director of the corporate governance center at the University of Delaware.
SHORT SELLERS EMBOLDENED
In explaining his reasons to take Tesla private earlier this month, Musk cited pressure from short sellers -investor who look to profit on beets that a company's stock will decline. "Being public means that there are large numbers of people who have the incentive to attack the company," Musk said.
Some short sellers were emboldened by Musk's u-turn. Christopher Irons, founder of investigative research website quoththeravenresearch.com, said the announcement showed Musk was nowhere near as close to taking the company private as he had claimed.
"Personally, I’m going to look to see how the stock opens on Monday. If it does not drop precipitously based on this, I will personally view it as an opportunity to add to my short position," said Irons, whose out-of-the-money put options make money if Tesla's stock declines.
Tesla shares closed at USD 322.82 on Friday.
One of Tesla's biggest challenges is ramping up production of its latest vehicle, the Model 3, which is critical to its profitability goals.
Tesla now aims to consistently build 5,000 Model 3s per week, a target it says it has managed "multiple times" since first achieving it one week in June.
Musk has said repeatedly since April that Tesla has no need to raise new capital, and has promised the company will be profitable and cash-flow positive in the third and fourth quarters.
However, Citigroup Inc analysts wrote in a research note earlier this month that, if a go-private transaction is looking less likely, "it would be wise for Tesla to at least try to raise significant new equity capital sooner rather than later," so it can inspire investor confidence.