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Tesla Board To Evaluate Musk Proposal To Go Private As Shares Dip

Posted: Wednesday, August 8, 2018 – 1:14 PM

Tesla’s board of directors said Wednesday it will evaluate chief executive Elon Musk’s proposal to take the electric car maker private.

After Musk last week raised the idea as a better solution for Tesla’s long-term growth, directors met “several times” and are “taking the appropriate next steps to evaluate this,” the board said in a brief statement issued before the stock market opened.

Musk jolted markets Tuesday by announcing the proposal on Twitter and saying he could finance the buyout at a large premium to current valuation, at a price of $420 a share.

Tesla shares, which surged 11 percent Tuesday on Musk’s statements, were in negative territory most of Wednesday as several equity analysts expressed skepticism at the idea.

Shares were down 1.4 percent at $374.33 near 1830 GMT.

Going private would liberate the company from the quarterly reporting cycle, allowing it to be “free from as much distraction and short-term thinking as possible,” Musk said in a blog post.

Musk, who has stirred controversy with his unorthodox management style and often confrontational approach to critics, said he viewed going private as “the best path forward,” but a final decision had not been made and ultimately rested on shareholder support.

Many companies avoid releasing market-moving news during trading hours, but Musk floated the idea in an afternoon tweet and then elaborated in a series of responses to questions on the social network, before finally releasing a letter to employees with more details on the rationale.

He said current shareholders would be protected and allowed to continue to participate in the company’s growth.

Equity analysts generally reacted skeptically to the idea, with Cowen saying the proposal raised many questions, such as how the company will raise needed capital to execute its manufacturing ramp-up.

“It is obvious to see how such a transaction would benefit a CEO who has been very distracted by social media and is focused on ‘burning shorts,’ but we question how remaining investors would benefit from a less liquid structure in which management receives far less scrutiny despite its historically poor execution and track record,” Cowen said.

JPMorgan Chase also noted the scant details in the proposal and questioned whether Tesla profits would match its lofty forecasts given that rival auto companies may be able to offer electric cars at lower price points that are subsidized with sales of vehicles with internal combustion engines.

But JPMorgan still estimated the odds that Tesla would go private as 50 percent, implying a higher valuation for Tesla shares than JPMorgan has been projecting.


© Agence France-Presse

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