General Discussion: 2018 Investor Roundtable

[mongo]

I don't understand the 60 Billion cash requirement to go Public, media seems to be all over this figure

if most shareholders are not planning to sell why do you need 60 Billion to buy them out ?

And can't you Just take funds from the new people buying-in and give that to the people selling ?

I don’t really understand the immediate need to raise 60 Billion funds if anyone can help with this would be awesome !

I don't think you are missing anything. Given Elon's confidence level I think >50% of shareholders are on board...

I'm digging the idea that Tesla could print $5k shares to 'help' shorts cover...

 

[Remus]

And many of the retail investors will probably sell, too.

Keep dreaming. Retail investors are pretty much us longs in this forum. Most of whom held shares through dip to 140 and 250. For us to sell just when Tesla is turning the corner? Maybe we can consider selling if the price is near 1000 instead of 420.

 

[neroden]

We have to wait for more details on the structure of the deal and the buyers. All shareholders also have to vote (one last time on this company as a publicly held entity?) on whether to take it private or not.

In addition, if I remember this sort of thing rightly, I suspect each class of convertible bondholders will most likely have to approve (since their embedded conversion option is being potentially devalued). And any class of shareholders who seems to be getting disparate treatment -- such as shareholders via retirement plans which don't allow them to hold private equity -- might have the right to vote separately or might sue for larger payments (dissenter's rights) or to keep the company listed or might have various other remedies. This is NOT going to be a quick deal. Musk really will have to make sure every *differently situated subgroup* of stock and bondholders is happy, which isn't straightforward.

I wonder if they have the stats for how many shares are held in vehicles which might be legally prohibited from holding private equity. Probably not. If it's large, I expect they'll have to raise the offer. Still they can probably finance it.

 

[Manton]

Great day for the believers, congrats to all those who held on through thick and thin!

How would shares bought on margin work in this case? Do i scramble to cover the margin now?

What kind of time frame are we looking at?

Is the $420 target enough to trigger the foretold squeeze? IF it does and we can take profit at $1500+, will we be able to buy back in before the deal closes? I'm as long as it gets, but would be silly not to take the shorts' money in a squeeze. But i definitely want to be back in before Tesla goes private.

 

[ggr]

I'll take a stab.

420/share is 72 billion valuation off just regular shares (higher with dilluted shares).

61% of Tesla is owned by institutions. These instutitons are made up of various funds, which raise money from individuals and other companies.

When they raise money to invest on behalf of their LPs, they detail their investment strategy and permitted investments. For example, a VC fund might tell its LPs that it will only invest in software startups. When they do that, they can't invest in resteraunts or oil stocks.

So when these large institutional funds raise money, they promise liquidity. They tell their investors that they will only invest in public equities so that they can tell their investors that any investor can pull out at any time.

So when Tesla goes private, those funds will be obligated to sell. It's part of the agreement with the people that gave them money to invest on their behalf.

Also, many of Tesla's loans require that they be paid on a change of ownership or corporate structure. And many of the retail investors will probably sell, too.

60B is an estimate based on the 44B to buyout the institutions, some of the retailers, some of the bonds, and provide fresh capital.

Elon owns 20%(ish) and is not selling. So your $72B is instantly reduced to $57.6B. Take it from there...

 

[neroden]

Elon owns 20%(ish) and is not selling. So your $72B is instantly reduced to $57.6B. Take it from there...

I'm pretty sure Tencent (a bit under 5%) isn't selling either, we know Ron Baron isn't selling, and I'd bet Bailie Gifford will do their best to avoid selling, just for starters (there's also the other 1% held by other insiders)

 

[Intl Professor]

FWIW I'm not selling and maybe even welcome going private since I worry about keeping hold of it after death (through my much younger wife!).

 

[schonelucht]

1) so which entity would be crazy enough (and able) to write a buy offer for Tesla. Sure they may not have to buy every share, by they have to offer to buy every share? In terms of fulfilling the goal of sustainable energy : Saudi sovereign wealth fund would be the worst option, China’s state capital second worst. Then some public company. Best would be Norway sovereign fund. (Not even sure if the last one would be allowed todo this)

2) for those considering holding into private. It matters enormously which entity. For example if it were big oil, would they honestly do what is best in the interest of their biggest threat?

3) this is possibly for the market thread but I don’t believe in a significant squeeze above 420.

4) you know me as someone who always thinks ‘how can this cost me’ and I will do the same here. If there is even the slightest hesitation around this deal, bankruptcy is just around the corner. Worse, if the offer is contingent on anything but a shareholder vote, then what Elon did was enough to put him in jail. Not saying it is, but to be honest, I can’t say I trust Elon enough to not be that crazy.

5) I Will not go private. In fact, as a foreign holder it is pretty much guaranteed that I won’t have that option. So I will sell my shares. As consolation price I get a floor of 420 but possibly some very unhappy short will pick them up for a few $ more.

6) even if I had the option of going private, i wouldn’t. Keeping a significant amount of money in a stock that I have no information about, with a board I don’t trust to be independent enough to look after my interests, that’s already a no. But the biggest issue is reduced liquidity. I will be taxed on my holdings at different points in life (yearly, at retirement, when some tax constructions run out and finally when I die). I need to sell some portion to cover that. Bi annual for a portion of my holdings determined by someone else is not good enough.

7) the only way I will stay in Tesla is if the final buy out offer is one made by a public company like alphabet, Microsoft or Apple.

 

[SPadival]

6) even if I had the option of going private, i wouldn’t. Keeping a significant amount of money in a stock that I have no information about, with a board I don’t trust to be independent enough to look after my interests, that’s already a no.

Bye bye.

I am not going to give the rest of your post any credibility by quoting it - it is the worst kind of speculation that I have so far only seen coming from bears like Mark Spiegel.

 

[RobStark]

 

[UnknownSoldier]

One day we won't need that Bloomberg tracker anymore because a private company won't need to report their production every quarter.

I'm not going to miss that green bar chart.

 

[MrDoor]

5) I Will not go private. In fact, as a foreign holder it is pretty much guaranteed that I won’t have that option. So I will sell my shares. As consolation price I get a floor of 420 but possibly some very unhappy short will pick them up for a few $ more.

6) even if I had the option of going private, i wouldn’t. Keeping a significant amount of money in a stock that I have no information about, with a board I don’t trust to be independent enough to look after my interests, that’s already a no. But the biggest issue is reduced liquidity. I will be taxed on my holdings at different points in life (yearly, at retirement, when some tax constructions run out and finally when I die). I need to sell some portion to cover that. Bi annual for a portion of my holdings determined by someone else is not good enough.

7) the only way I will stay in Tesla is if the final buy out offer is one made by a public company like alphabet, Microsoft or Apple.

5+6. Yes concerned that being a foreign holder if I would be able to go private with them and then would also need to consider any types of risks with a private company and how safe my investment would be. For some who have investments tax free they would then incur taxes if profits are realised in a private company outside their tax free account.

7. This would be much easier but unlikely to be one of these big companies IMO

 

[MrDoor]

IMO this will not be going through at $420, I mean the next 2 quarters are likely to be positive for the first time in a long time and $420 would surpassed with this news alone.

 

[RobStark]

One day we won't need that Bloomberg tracker anymore because a private company won't need to report their production every quarter.

I'm not going to miss that green bar chart.

More reason to follow the tracker to know what is going on.

Then again without active day traders there may not be many people checking it out and may fade away.

Is Tesla even going to report annual sales/production numbers as a private company?

We may only get government vehicle registration data.

 

[neroden]

1) so which entity would be crazy enough (and able) to write a buy offer for Tesla. Sure they may not have to buy every share, by they have to offer to buy every share? In terms of fulfilling the goal of sustainable energy : Saudi sovereign wealth fund would be the worst option, China’s state capital second worst. Then some public company. Best would be Norway sovereign fund. (Not even sure if the last one would be allowed todo this)

Most likely: several private billionaires. If Tesla has pledges by a few very large shareholders that they want to stay on when it goes private, they only have to offer to buy the *rest* of the shares -- maybe 70% of the shares. So maybe $50 billion.

Larry Page has $53.6 billion.

2) for those considering holding into private. It matters enormously which entity. For example if it were big oil, would they honestly do what is best in the interest of their biggest threat?

Yes it does matter a great deal.

3) this is possibly for the market thread but I don’t believe in a significant squeeze above 420.

4) you know me as someone who always thinks ‘how can this cost me’ and I will do the same here. If there is even the slightest hesitation around this deal, bankruptcy is just around the corner.

That doesn't make any sense. Regardless of how much legal trouble they get into or how much chaos there is in the stock price, the company is now structurally profitable, can pay off its debts as they come due, and so isn't really in a position to go bankrupt.

Worse, if the offer is contingent on anything but a shareholder vote,

Well, I'll bet you it's contingent on convertible bondholder votes and possibly regulatory approvals too, but they'll let that slide given the context. Given the known possible sources of financing I really don't have any problem believing that the financing is lined up.

then what Elon did was enough to put him in jail. Not saying it is, but to be honest, I can’t say I trust Elon enough to not be that crazy.

Unfortunately, he could be pretty crazy, yes...

5) I Will not go private. In fact, as a foreign holder it is pretty much guaranteed that I won’t have that option.

I am pretty sure a go-private deal would force out a lot of stockholders in retirement plans and a lot of really small stockholders. Some foreign direct holders will probably be able to stay.

So I will sell my shares. As consolation price I get a floor of 420 but possibly some very unhappy short will pick them up for a few $ more.

6) even if I had the option of going private, i wouldn’t. Keeping a significant amount of money in a stock that I have no information about, with a board I don’t trust to be independent enough to look after my interests, that’s already a no. But the biggest issue is reduced liquidity. I will be taxed on my holdings at different points in life (yearly, at retirement, when some tax constructions run out and finally when I die). I need to sell some portion to cover that. Bi annual for a portion of my holdings determined by someone else is not good enough.

I'm wealthy enough I'm willing to keep *some* money in something that illiquid, but not as much as I have invested now.

7) the only way I will stay in Tesla is if the final buy out offer is one made by a public company like alphabet, Microsoft or Apple.

That's certainly a possibility. Such an offer might also be made by their primary stockholders personally though. We are back in the 19th century era of individual very rich people.

 

[RobStark]

Sergey Brin has $47B

 

[BioSehnsucht]

Larry Page famously said he'd rather give his money to Elon Musk than charity.

 

[schonelucht]

Most likely: several private billionaires.

Good one. Hadn't considered that possibility. But it is certainly there.

That doesn't make any sense. Regardless of how much legal trouble they get into or how much chaos there is in the stock price, the company is now structurally profitable, can pay off its debts as they come due, and so isn't really in a position to go bankrupt.

Management distraction from a failed leveraged buy out alone may be enough to turn the company back in the red. Not to mention the many employees that have stock options. And then there are the shareholder lawsuits. No, we do not want to see this thing fail. Under no circumstances. I would even vote 'yes' on a _lower_ take over price at this point because of this conviction.

Well, I'll bet you it's contingent on convertible bondholder votes and possibly regulatory approvals too, but they'll let that slide given the context. Given the known possible sources of financing I really don't have any problem believing that the financing is lined up.

Convertible bonds have provisions ownership events. So does other debt. Regulatory approvals sure, but that's obvious. Here is the thing : I have no problem believing that the financing is lined up. But I also have no problem believing that the financing is not lined up. As you say : Elon is crazy enough to go all in with a $60B market cap. He just is that kind of guy. We cannot discount that possibility. And that's why I am not buying TSLA at $380. That implies only a 10% chance of the deal not going through because finance is not 100% committed.

I'm wealthy enough I'm willing to keep *some* money in something that illiquid, but not as much as I have invested now.

Smart. That's probably a reason why you are in the position to make these calls in the first place. There will be more people like you. Or people like @DaveT who have significant TSLA as collateral. That's why I think the short squeeze is not going to happen. At the same time, if I were short I would cover cover cover cover. Because there is no guarantee that there really will be enough holders that sell. Even if they miss a few million shares *sugar* will really hit the fan.

That's certainly a possibility. Such an offer might also be made by their primary stockholders personally though. We are back in the 19th century era of individual very rich people.

In the interest of everyone, let's hope they move swiftly. Uncertainty can kill opportunities too.

 

[NicoV]

Musk plan to privatize Tesla pushes $2.3 billion of debt above conversion price

 

[bhzmark]

In addition, if I remember this sort of thing rightly, I suspect each class of convertible bondholders will most likely have to approve (since their embedded conversion option is being potentially devalued). And any class of shareholders who seems to be getting disparate treatment -- such as shareholders via retirement plans which don't allow them to hold private equity -- might have the right to vote separately or might sue for larger payments (dissenter's rights) or to keep the company listed or might have various other remedies. This is NOT going to be a quick deal. Musk really will have to make sure every *differently situated subgroup* of stock and bondholders is happy, which isn't straightforward.

I wonder if they have the stats for how many shares are held in vehicles which might be legally prohibited from holding private equity. Probably not. If it's large, I expect they'll have to raise the offer. Still they can probably finance it.

converts don't have to approve, but will have the option to be bought out. If this is a fundamental change which it likely will be.

SEC Filing | Tesla, Inc.

Fundamental Change Permits Holders to Require Us to Purchase Notes

If a “fundamental change” (as defined below in this section) occurs at any time, holders will have the right, at their option, to require us to purchase for cash all of their notes, or any portion of the principal thereof that is equal to $1,000 or an integral multiple of $1,000 on the fundamental change purchase date, which will be a date specified by us that is not less than 20 or more than 35 business days following the date of our fundamental change notice as described below or, if we fail to specify a fundamental change purchase date, the 35th business day following the date of our fundamental change notice (without prejudice to any rights or remedies holders may have on account of such failure).

The fundamental change purchase price we are required to pay will be equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest to, but not including, the fundamental change purchase date (unless the fundamental change purchase date falls after a regular record date but on or prior to the interest payment date to which such regular record date relates, in which case we will instead pay the full amount of accrued and unpaid interest to the holder of record on such regular record date, and the fundamental change purchase price will be equal to 100% of the principal amount of the notes to be purchased).


edit to add: oops wrong link to the recent 10-q which has a short dicsussion of this but the longer selection I quoted is from the debt disclosure a while back. Here it is: 424B5