Elon Musk set the finance world ablaze on Tuesday by declaring that, pending a shareholder vote, he favors taking Tesla private and already has the funding secured to do so. An email about the possible move offered no insight on who would back the leveraged buyout, but let’s take him at his word and speculate: Who could buy Tesla?
Musk says he can take the company private at $420 a share, giving Tesla a value of $82 billion, according to Bloomberg, which said it would be the largest leveraged buyout in history.
There’s a lot of possible investors at play here. A simple perspective is that Musk—who owns 20 percent of Tesla’s shares—could tap a consortium of partners to make it happen, but he likely needs backers with enough cash to make it happen. For example:
All this went down after news broke earlier Tuesday that Saudi Arabia’s sovereign wealth fund had built a less than 5 percent stake in Tesla worth about $2 billion, naturally, it was targeted as a possible buyer.
The fund has more than $250 billion in assets, and plenty of cash lying around. It’s also looking to diversify the country’s economy, given that the future for oil is looking pretty grim right now, as Bloomberg pointed out.
Saudi Arabia’s sovereign-wealth fund will borrow to boost returns from its investments as it seeks to diversify the kingdom’s oil-dependent economy.
The Public Investment Fund will also look for more partnerships like its tie-ups with money managers Blackstone Group LP and SoftBank Group Corp. as part of its aim to boost assets under management to $2 trillion by 2030, Managing Director Yasir Al-Rumayyan said in a Bloomberg Television interview at the Future Investment Initiative in Riyadh. The fund will seek to hold a quarter of those assets in foreign markets, he said.
Norway’s fund also has $1 trillion in assets. Norway’s a big Tesla fan, so maybe it’s Norway. As Bloomberg put it last fall:
It has few rivals in terms of size. Japan’s Government Pension Investment Fund was valued at 144.9 trillion yen ($1.3 trillion at the current exchange rate) at the end of March. China, of course, has about $3 trillion in currency reserves. There are also big cash-piles at money management firms such as BlackRock Inc.’s $5.7 trillion and Vanguard Group’s $4.4 trillion.
This would, similar to Saudi Arabia’s intention, help achieve the fund’s goal of diversification. The Norway fund last fall proposed ditching oil and gas stocks, so as to avoid exposure to “permanent drops in oil prices,” Reuters reported at the time. Whether Norway explicitly states it or not, it would also mark a notable ethical stance, if it indeed moves forward with the idea.
Notably, CNBC reached out to several Wall Street banks and said “none of them was aware of any transaction or had committed to funding a leveraged buyout of Tesla.”
If Musk doesn’t have funding from typical sources like Wall Street firms, then maybe it’s a company with a lot of cash in its pockets?
Yes, Apple. Maybe. That’s the wild card here. Relatively fresh off its own failure to get into the automotive game, maybe it’s looking to take a controlling stake in Tesla.
The tech giant has about $285 billion in cash reservers. It could buy Tesla at Musk’s target and have plenty left over. It’s not totally unreasonable to consider. Musk has alluded to a hope of one day launching a ride-sharing venture, where Tesla owners could make money having their (theoretically) autonomous cars shuttling passengers around at times they don’t need the vehicle. An investment from Apple could help accelerate its autonomous vehicle efforts and move toward that goal.
Now, that also leaves open the possibility of other major corporations with stupid amounts of cash getting involved, like Amazon or Alphabet. But the Apple Should Buy Tesla narrative has always been kicking around, and it’s clearly interested in the autonomous driving industry. It’s more of a natural fit then, say, Google’s Alphabet, which says the launch of its own self-driving business is imminent.
In a more unlikely scenario, maybe there’s some private equity firms that have access to, I don’t know, $10 billion, and are just itching to finance the rest of the purchase with a ton of debt.
I mean, this sort of thing does happen. But $70 billion worth of debt? Again, quite unlikely.
Tesla’s independent board of directors has, in theory, a fiduciary responsibility to shareholders to evaluate all offers on the table. So, let’s presume Musk has funding secured, and he presents the bid to the board, and let’s presume he actually doesn’t have a controlling vote of the board (which a judge in an ongoing case about the SolarCity acquisition already said is a bogus claim).
In the event a bid at $420 per share is presented to the board, that opens up the possibility for someone else to come in and make a more substantial offer and snipe it out from under them. That could be fun.
Or maybe this is all a joke just to screw the Tesla short sellers. There’s some notable names who considered the possibility. Musk getting in legal trouble over a 420 tweet sure makes for a wonderful narrative flourish.