Tesla board indicates Musk buyout plan at early stage

Elon Musk was facing mounting pressure on Wednesday over claims that he has already completed the main steps for a $70bn buyout of Tesla, after the carmaker’s board indicated the proposal was only in the early stages of being considered.

The Tesla boss took to Twitter the day before to claim that financial backing for a deal had been “ secured” and suggested that only one formal step was needed to complete it. “Only reason why this is not certain is that it’s contingent on a shareholder vote,” Mr Musk tweeted.

However, a statement by six of the company’s directors early on Wednesday indicated that Mr Musk had only “opened a discussion with the board about taking the company private” last week. It went on to say the board was “taking the appropriate next steps to evaluate it”.

Two people familiar with the situation said that Tesla’s board had not hired advisers to assist with its deliberations, as of late Wednesday.

The apparent gap between Mr Musk’s claims for a buyout, and the process needed to formulate an offer and get board approval, added to questions that had been swirling since the day before over whether the funding was in place for what would be the biggest buyout in history. The company did not respond to questions about the status of the deal, saying it had “no further comment”.

“That’s a very problematic tweet on his part,” Harvey Pitt, former chairman of the Securities and Exchange Commission, said on CNBC. Referring to Mr Musk’s claim that he only needed a shareholder vote to complete the deal, he added: “That’s very strange . . . Shareholders cannot support a proposal that hasn’t yet been made or exist.”

Mr Musk’s claim on Twitter that funding for a buyout was “secured” also drew questions from financiers about whether any money had been officially committed.

People at several large banks which would usually provide financing for big buyout transactions said that they were unaware of any attempt to raise a large amount of money. “We would definitely know if he had secured $70 billion for a take private but we don’t and we don’t know about anybody else involved,” said one.

Late on Wednesday, Mr Musk returned to Twitter for the first time in more than 24 hours to discuss new Tesla products and also returned to the subject of the buyout. He retweeted the results of an online poll conducted by an electric car news website, which asked its readers, “Would you go for Elon Musk’s plan to take Tesla private?” Eighty-five per cent said yes.

Tesla has struggled to reach positive cash flow, leaving it in a weak position to take on a lot of debt in a buyout, and several Wall Street analysts said that this suggested Mr Musk would have to rely on deep-pocketed equity investors to back his plan. People representing some of the largest sovereign wealth funds, who are seen as the most likely backers of such a deal, denied privately that they were involved.

In their statement, the Tesla directors said their discussions with Mr Musk had “addressed the funding for [the buyout] to occur.” They didn’t give further details or say whether the Tesla chief executive had presented a firm financing commitment.

John Coffee, a professor at Columbia Law School, who specialises in securities fraud, said he expected that Mr Musk and Tesla will face a raft of litigation following his tweets and public statements about taking the company private.

“If funding has not been fully secured . . . this is a very inviting case for the US plaintiffs’ bar,” he said.

Other lawyers, however, said Mr Musk was likely to have some legal latitude for his statements. “It’s got to be a materially false and misleading statement. If it’s not that, it’s not securities fraud,” said William White, a former senior trial counsel in the SEC’s enforcement division, and now a partner at Allen & Overy.

Shares in the electric carmaker, which closed nearly 11 per cent higher at $379.57 on Tuesday after Mr Musk’s Twitter intervention, were down over 2 per cent on Wednesday.

Mr Musk first publicly raised the possibility of buying out shareholders at a price of $420 in a series of tweets that prompted chaotic trading in Tesla shares. While he said he had funding for such a buyout, he also said he hoped many investors would stick with Tesla as a private company.

The abrupt disclosure has thrown a spotlight on the role of Tesla’s board in restraining the company’s impulsive chief executive. Any plan is likely to require consideration by a committee made up of independent directors — the process followed by Michael Dell when he took his PC company private in 2013.

While Wednesday’s brief statement came from some of the company’s independent directors, they did not indicate that any formal process had been launched to review Mr Musk’s proposal, let alone back the plan.

The question of whether Tesla’s board is sufficiently independent from Mr Musk has been a past source of complaint from some shareholders, who have claimed that several of the directors have ties to to the company’s CEO due to previous business or investment relationships. The issue came to the forefront two years ago, after Mr Musk made a takeover offer for Solar City, a company in which he was also involved.