Business

Elon Musk says talking to Saudi fund, others on Tesla buyout

Tesla Inc. chief executive Elon Musk explains what he meant by tweeting "funding secured" to take his company private: He is confident a deal can be done but has not yet finalized a plan.

Billionaire CEO says he is confident a deal can be done

Tesla CEO Elon Musk says he is in talks with Saudi Arabia's sovereign wealth fund, and other potential backers, about his proposal to take the company private. (Joe Skipper/Reuters)

Tesla Inc. chief executive Elon Musk on Monday explained what he meant by tweeting "funding secured" to take his company private: He is confident a deal can be done but has not yet finalized a plan.

Musk's latest disclosure, made in a blog post on Tesla's website, comes six days after he surprised investors by announcing on Twitter he was considering taking the company private at a price of $420 US per share and that funding was "secured." Since then, the unorthodox statement has emerged as a potential legal and regulatory minefield for the Silicon Valley billionaire.

Since then, no investors have stepped forward publicly as being involved with the plan, and Musk's tweet is under investigation by the U.S. Securities and Exchange Commission, according to the Wall Street Journal, and the subject of lawsuits brought against him by investors.

The chief executive of the electric car company said on Monday that the manager of Saudi Arabia's sovereign wealth fund had voiced support for the company going private several times, including as recently as two weeks ago, but also said that talks continue with the fund and other investors.

Musk said he is also working on figuring out what share of investors will likely roll their stake into a new private company, and by extension exactly how much capital he needs to buy remaining investors out.

Tesla shares rose 0.26 percent to $356.41. They had closed at $376.57 on Tuesday after jumping 11 per cent on Musk's announcement.

The company declined to comment beyond Musk's blog post.

"I left the July 31st meeting (with the Saudi fund) with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving," Musk said.

"This is why I referred to 'funding secured' in the August 7th announcement."

Musk and Tesla Inc. were sued twice on Friday by investors who said the tech billionaire's unorthodox tweet artificially inflated the company's stock price and violated federal securities laws. (Kiichiro Sato/Associated Press)

The Saudi fund over nearly two years had approached him repeatedly about taking the company private, Musk said, and the latest meeting came after it took a nearly five per cent stake in Tesla.

Saudi Arabia's Public Investment Fund (PIF) manages more than $230 billion US in assets, but about 65 per cent of that is stakes in large Saudi companies and most of the rest has been committed in overseas deals such as funding commitments to Blackstone Group's U.S. infrastructure fund or SoftBank Group Corp's Vision Fund.

The Saudi fund intends to sell its $70 billion US stake in Saudi Basic Industries to oil giant Aramco, which could free up funds for new deals, but that sale may take months to conclude.

Yasir Othman al-Rumayyan, managing director of the PIF, referred Reuters to the corporate communications team, which did not immediately respond to a request for comment.

Funding quandary

Musk said that since his Twitter post on the possibility of a deal the managing director of the Saudi fund had expressed support for proceeding subject to financial and other due diligence.

PIF officials have said in the past that decisions at the sovereign wealth fund are made with care, emphasizing corporate governance. The PIF board is headed by the Crown Prince Mohammed bin Salman.

Musk on Monday said he was talking to other potential investors but did not provide any details on the exact source of funding. He also said he was still trying to gauge how many existing shareholders would keep their stake in a new private company.

Meanwhile, Musk faces scrutiny of his tweet on secured funding.

Securities lawyers said U.S. law requires executives and companies to have a "reasonable basis" on which to make statements, meaning the fact Musk said he believed he had secured a verbal agreement for the funding after the July 31 meeting could put him on a firmer footing with the SEC.

It remains unclear if his definition of "secured" matches those of a reasonable shareholder, who may believe the statement indicated Musk had a written agreement, they said.

"This supports the idea that there was reasonable basis on which to believe that funding could be secured but it doesn't eliminate the concern with respect to whether 'secured' was an overstatement and only underscores how inappropriate Twitter was for such a disclosure," said Zachary Fallon, a former SEC attorney and principal at law firm Blakemore Fallon.

Wall Street had voiced doubts about Musk's ability to pull off what could be the largest-ever go-private transaction, valued at as much as $72 billion US.

Musk on Monday estimated two-thirds of existing Tesla shareholders would roll over their holdings into a private company, but said that he was still talking with major shareholders and advisers before settling on a structure for the deal.

Musk added that most capital for the deal would come from equity and it would not be "wise" to burden the company with added debt. Discussing full details on the plan, including the source and nature of the funding, would be "premature" now, he said.

A major investment from Saudi Arabia would likely trigger a review by the Committee on Foreign Investment in the United States, which scrutinizes deals for potential national security concerns.

Jeremy Zucker, co-head of Dechert's International Trade practice, said two key determinations would be made if a deal moved forward: whether Tesla contained critical technologies and whether the involvement of Saudi financing was a national security issue.

The multi-agency oversight operation could also determine whether the investment would give the Saudi's access to critical technology.

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