streetskooler
Member
Many posts here show a serious lack of understanding of how corporate finance works. It’s not like going to your credit union to get a loan to buy out Vinnie’s Pizzeria
When a company decides it wants to acquire a publicly listed company, it does so my acquiring *all* outstanding shares, not 51%. At 51% you will gain control of the board, but you don't own the company. It is still publicly listed.
None of the numbers listed in the table above mean anything in this process. The market capitalization of a public company is the value of all its outstanding shares. This is (at least) what an acquirer will have to pay in order to buy the company. As of market close Friday, Tesla’s market cap was 52 bn and GM was 59 bn, so GM is not worth significantly more than Tesla in the only measure that counts. BTW, Ford and Fiat Chrysler are in the low 40s. Yes, they are worth less than Tesla.
Now let’s say Company XYZ decides it wants to acquire Tesla. In fact, it will need more than 52 bn because shareholders will expect a premium to give up their Tesla stock. After all, they own it because they expect it to outperform the market, otherwise they’d have that money in an index fund.
Where does XYZ get 50+ bn? One thing they do not do is walk into their friendly investment bank and get a loan. No investment bank has that kind of liquid assets sitting around…they put money to work earning a return. What the investment bank does is arrange for XYZ to raise the money in the capital markets.
There are two options: issue stock and issue bonds. Issuing stock seems like the easy way to go but an issue of this size dilutes the ownership of existing shareholders and will likley cause the stock price to fall. And if XYZ pays dividends, it will have to pay dividends on the new shares. The corporate version of taking a loan is issuing bonds. There is no such thing as "getting loan for the amount of your profits. " The bond market looks at the proposed issue in the context of XYZ’s financials, determines the risk of getting their money back and sets the interest rate as a spread off US Treasuries.
A hostile takeover is not frowned upon by anyone other than the company being acquired. It has no bearing on whether the acquirer will get financing in the future. It does mean that the premium to current share price will be higher, especially if insiders own a significant portion of the target
There is no way that any of the Big 3 automakers could raise anything close to the amount of money necessary to acquire Tesla but Apple could pay with cash. If you want a lesson in how things can go wrong, check what happened when the ego manic who ran Porsche tried to acquire Volkswagen. Spoiler alert: he miscalculated and was taken over instead.
But all this misses the most important point. If Elon and the other insiders don’t want to be acquired and XYZ persists, Elon will simply walk from the company and many employees will follow. Like it or not, Tesla is Elon Musk, both in the public eye and in the eyes of the employees. So XYZ is left with the assets of Tesla and all its debt but not the people who made it. Pyrrhic victory.
And if Tesla fails imminently as some here insist, who would pay anything for what's left? If you were smart enough to cancel your model 3 order, you could use your refund to buy the assets.
Oh yeah....I've worked on Wall Street for 30 years.
Finally somebody who knows what they’re talking about. Refreshing, nice post. The only thing I’d add is that TSLA stock has more than doubled in the last 2 years. If they don’t start pumping model 3’s out investors may start to lose confidence in Elon and his plans and dump the stock sending it and the $50B valuation down with it.
