The mystery about the possible sources of financing for Elon Musk’s potential effort to take Tesla (TSLA - Free Report) private got much clearer over the weekend as Musk stated in a blog post on the company’s website that the he was referring to the Saudi Arabian Sovereign Wealth fund when he tweeted last week that he had “funding secured.”
Read about the original tweets and the speculation that followed last week here and here>>
In the post Musk explained that the fund – which it was reported last week had acquired almost 5% of Tesla shares in the open market – had approached him “multiple times” over the past two years about the possibility of taking Tesla private. He clarified that in an in-person meeting on July 31st, the managing director of the fund, Yasir Al-Rumayyan, “expressed regret that (Musk) had not moved forward previously on a going private transaction with them, and he strongly expressed his support for funding a going private transaction.”
Musk says he left the meeting with “no question that the deal with the Saudi sovereign fund could be closed” and that confidence was what he was referring to in the “funding secured” tweet. He pointed out that the Saudi fund has more than enough capital to execute on such a transaction and that he has continued to have discussions with them about financial due diligence and regulatory issues. He has also consulted with other large Tesla shareholders and “number of other investors.”
Musk elaborated that the deal would consist primarily of an equity investment in order to avoid burdening the company with increased debt. He estimated that approximately two thirds of existing shareholders would elect to continue to be stakeholders, requiring a third or less of the $72B deal to be financed with cash to buy out those who chose to tender their shares.
The Saudi Sovereign Wealth Fund – also known as “PIF” for Public Investment Fund - has previously laid out its long-term plan to diversify away from petroleum- related investments and to control approximately $2 trillion by 2030. The fund currently has assets of $230 billion, including $150 billion worth of shares in listed Saudi companies.
PIF has recently made investments in Uber, Virgin Galactic and has joint ventures with the Blackstone Group (BX - Free Report) and SoftBank that invest in infrastructure projects and technology companies. A stake in Tesla, with its focus on alternative energy technologies would fit nicely with PIF’s basket of investments and provides an obvious hedge against a decline in demand for and prices of oil.
Even with the increased clarification of the details of Musk’s plan, investor appear to be discounting the probability of the deal occurring and Tesla shares are trading lower by just over 1% at mid-day on Monday at $352/share.
As this highly unusual situation unfolds, stay tuned for Zacks commentary on new details as they arrive.
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