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Munster estimated that 50% of institutional shares would sell including the ones forced to sell and the rest would invest with the private TSLA. That seems as good a guess as any -- I used that number in my calculations.
One more thought that the talking heads haven't discussed much. This will not be a typical LBO. TSLA doesn't have the credit for it and already has too much debt. This is a venture capital deal. New shareholder money (or an increase by current shareholder) to buy the long shares that don't hold on for whatever reason in TSLAP. Not nearly as complex (or at least no more complex) than a LBO. Divide the shares up among the investors at the $420 price, establish the new restrictions among the new owners on accumulating shares, etc., de-list and you are done. Without all the investment bank underwriting needed for an LBO, I think this should be easier - perhaps novel (VC usually sell to the Street, not buy from the Street), but do-able if you have billionaire friends who like the idea. I think the guy from DataTech mentioned VC in an interview today, and that's all of heard of it - but that is really what this amounts to.
RFernatt
Solar/EV Owner/Enthusiast
I've been mulling all of this. I am 100% behind going private and would only disappointed if I had to sell my shares. I like the idea of the "private stock exchange" similar to SpaceX as a way to value the company and periodically be able to buy/sell shares from other private shareholders.
I also started to think about how I've always wanted to purchase SpaceX shares and what a merciless bloodbath Elon could create for shorts if the private stock exchange included both SpaceX and Tesla private shares. The only way one would get invited to this private party to have an opportunity to purchase private SpaceX shares would be as a current Tesla shareholder that is converted to private. If you're going to dream, dream big!
From Bloomberg: "For years SpaceX has run an internal stock market for employees and other shareholders, allowing it to remain closely held. They can privately sell shares to sophisticated investors such as Fidelity Investments through liquidity events, according to a letter from Musk to employees. Tesla could use a similar structure to go private without requiring stockholders to cash out, said Sohail Prasad, founder of San Francisco-based Equidate, which helps closely held tech firms hold similar share sales.
In an email to Tesla employees on Tuesday, Musk said the structure envisioned for Tesla is similar in many ways to the SpaceX structure: external shareholders and employee shareholders have an opportunity to sell or buy approximately every six months."
I also started to think about how I've always wanted to purchase SpaceX shares and what a merciless bloodbath Elon could create for shorts if the private stock exchange included both SpaceX and Tesla private shares. The only way one would get invited to this private party to have an opportunity to purchase private SpaceX shares would be as a current Tesla shareholder that is converted to private. If you're going to dream, dream big!
From Bloomberg: "For years SpaceX has run an internal stock market for employees and other shareholders, allowing it to remain closely held. They can privately sell shares to sophisticated investors such as Fidelity Investments through liquidity events, according to a letter from Musk to employees. Tesla could use a similar structure to go private without requiring stockholders to cash out, said Sohail Prasad, founder of San Francisco-based Equidate, which helps closely held tech firms hold similar share sales.
In an email to Tesla employees on Tuesday, Musk said the structure envisioned for Tesla is similar in many ways to the SpaceX structure: external shareholders and employee shareholders have an opportunity to sell or buy approximately every six months."
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If 50% of institutional investors will be selling, shorts will have no trouble covering.
My musings, since I have a few minutes before I have to moderate some more.
1. Remember to identify the players. In this situation, Elon is acting as an individual who, for valid business reasons, wants to take Tesla off the stock market. He has a perfect right to talk to people about funding and negotiate with them, and with Tesla.
2. He probably does have to recuse himself from the board for the purposes of any decisions. Hence why it was the other directors saying that they are evaluating.
3. Therefore, Elon is not representing Tesla's board in this. He represents the investment consortium.
4. No-one has to disclose anything at this point. It's a negotiation, that's all. In fact it would be very surprising to have any of the details publicly disclosed. (I could write a letter to GM's board offering to take them private. Would they have to file an 8-K? Don't be silly.)
5. Elon doesn't have to tell Tesla's board who his backers are. It's up to them to judge his credibility. He's pretty credible. (see 4 above.)
The media have to say something, so they make stuff up, or get someone else to make stuff up, so they can report on it. Don't fall for it.
1. Remember to identify the players. In this situation, Elon is acting as an individual who, for valid business reasons, wants to take Tesla off the stock market. He has a perfect right to talk to people about funding and negotiate with them, and with Tesla.
2. He probably does have to recuse himself from the board for the purposes of any decisions. Hence why it was the other directors saying that they are evaluating.
3. Therefore, Elon is not representing Tesla's board in this. He represents the investment consortium.
4. No-one has to disclose anything at this point. It's a negotiation, that's all. In fact it would be very surprising to have any of the details publicly disclosed. (I could write a letter to GM's board offering to take them private. Would they have to file an 8-K? Don't be silly.)
5. Elon doesn't have to tell Tesla's board who his backers are. It's up to them to judge his credibility. He's pretty credible. (see 4 above.)
The media have to say something, so they make stuff up, or get someone else to make stuff up, so they can report on it. Don't fall for it.
Sudre
Active Member
But don't the private investors have to also take on the debt/bonds That would push that number back up wouldn't it?Exactly. I don't know why no one in the media seems to understand that the shorts are buying back something like 1/2 of the shares necessary to close Elon's deal that will burn their position into the ground. Poetic justice.
Here is the math according to Gene Munster in the post above:
"Insiders, including Musk, own just over 25% of Tesla shares. Individual investors account for 12% of shares, and large institutional investors like Fidelity and T. Rowe Price make up the remaining 63%. We believe nearly all investors would be supportive of going private, but not all institutional funds would be able to participate in private investments. For that reason, we assume half of Tesla’s institutional ownership (~30% of the company) needs to be bought out. Individual investors, who see greater upside than 13.5%, would likely prefer to maintain ownership if they are able to, depending on fund structure and accredited investor requirements. In short, the more shareholders that decide to roll their shares into the private entity, the less funding Tesla will need for a buyout. By our math, Tesla will need between $25 and $30B."
But Munster does not account for the fact that there are effectively 205 million shares outstanding because shorts have borrowed 35 million on top of 170 million actual shares outstanding.
Once the short sellers are forced to buy those shares back for ~$13billion, the new investors only need to pay something like $13-$15B to get the deal closed. The shorts buy out the rest of the institutions and retail shareholders who don't want to be part of the private Tesla.
Still do-able.
I think that's probably right but it depends on who else decides to join the party ("last chance to buy TSLA before it goes private") and also depends on timing. Shorts seem not to be very concerned yet and that could come back to bite them if they all try to head for the exits at the same time.
Also, the 50% number for institutional investors selling could turn out to be too high. Existing investors could decide to buy more shares before it goes private (I did
). Or option holders could decide to convert to shares so they could own TSLA as a private company.All sorts of awkward, uncomfortable scenarios for our short-selling "friends."
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The TSLA shares owned by those institutions will be bought by Elon's group at $420 each. There shouldn't be a need for those shares to be sold on the open market. I expect it's already been determined who those sellers will be.
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Why would they sell to the Elon Group for $420 when they could be selling to shorts at $421?
But the floor has been set at $420, so even though shares would be available, every single short would be covering at a loss.
Well, there’s one difference. Reuters doesn’t actually have BS built into their name.
They don't have to sell on open market, they can wait and get $420 from Musk. Or if deal falls through, no changes to them.
Well, yes, that's the nature of a short squeeze. But said squeeze appears to be capped at "a smidge over $420", not the much higher figures some are expecting due to the hypothesis that there might not be enough shares available for purchase. The existence of institutional investors who must liquidate seems to effectively cap the short sellers' losses.
Not throwing darts here - just asking. How do we know that Elon is acting as an individual? TSLA lists his twitter feed as a way to follow TSLA information. Nothing in his tweets indicates "I'm not speaking for TSLA here, but am considering going private." Since he wants to KEEP his shares and likely have some sort of role/promote with TSLAP, the board would still ask him to recuse himself. As such a large shareholder, still easy for the board to establish that boundary to due to the personal benefit to Elon.
If Elon was acting independently, but didn't disclose that in the tweet, and then board says "we don't have to file an 8k" - that's where I see a potential concern. I'd recommend the 8k out of caution, even if it doesn't add to the facts.
Sorry, wrong. The institutions are guaranteed to get $420 if the deal goes through, but they get that when the deal is finalized. The shorts have to cover before then, especially if the stock price starts going up. Some people here have said "So why wouldn't the institutions sell at $421, or $425, thereby stopping any short squeeze?" Well, the institutions have to compete to get 401k business. (Disclosure: I was a trustee for ex-employer's $2B 401k plan.) When the annual review comes up, and you see that fund A, whose managers sold TSLA at $421, performed much worse than fund B, whose managers followed the squeeze up and sold at $500 or $600, well, fund A could be in trouble. No, the institutions will not put a cap on any short squeeze that may (or may not) eventuate.
Edit: Ha! Hadn't even seen this when I wrote the above.
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Unless the various institutions are (illegally, I presume) coordinating with each other, it's a race to the bottom, where "the bottom" is "just barely over $420."
No matter how you cut it, supply is greater than demand.
Is it possible that this event could be “oversubscribed” and yield a 5 to 10 billion dollar capital raise? That would help improve growth rate immensely.
Indeed, if shorts are squeezed they could be covering in the open market at almost any imaginable price. Those shares would then be returned to those who lent them. The lenders would then have to decide whether to sell to Elon's group or continue owning the shares of what will become a private company.
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