TSLA Market Action: 2018 Investor Roundtable

[Lessmog]

Hey, this just occurred to me:
Regarding why Saudi does not seem to be buying at these prices, what do we know about the terms of a deal to buy into Teslap? Maybe they expect a hefty rebate and to pay less than current rate?

 

[Matias]

guaranteed

 

[croman]

FYI CFIUS was just amended and signed by President Trump.

The new legislation brings expanded oversight over previously uncovered transactions, including minority stakes and other non-controlling investments.

Trump to Sign CFIUS Reform Bill: What Dealmakers Need to Know | National Law Journal

 

[Xorbit]

Why would institutions who aren't going to invest in TSLAP sell at this discount to the buyout price? If the deal fails, they have no reason to sell. If the deal goes through, Tesla pays them $420 per share. I can't think of a good reason why they would want to get out in a hurry at these lower prices.

Great point. There's also a high probability (and we can argue how high) that Tesla gets taken private at $420. So shorts are now playing a dangerous game. For them it used to be about bankruptcy or valuation, now it is about something very different: how certain is it that Tesla goes private at $420? So the rationale and risk of being short are now very different than they were before this news broke. I'm guessing here, but I don't think that's the kind of bet Einhorn or perhaps even Chanos wants to make.

 

[Moderatefan]

As long as it's under 15% it'll be okay. Anything more, and they'll have a big influence even if it's not majority.

Note Elon estimates 1/3 will sell, i.e. 33%.
15% is not close to "funding secured" if that is what their agreement was.
I hope it was something along the lines "we'll provide all funding necessary, but ok with smaller stake per your vision."

 

[Wooloomooloo]

No spin needed. It is the blog post itself:
Once the Saudi's get access to the books in their DD, you can probably kiss this deal goodbye. While Tesla has been doing a good job with distractions about production the Saudis will zero in on deliveries which is what brings in the money.

What exactly do you think will be on their books, that is not abundantly clear in the 10k filings, that will scare them away?

 

[dw4ngg]

It would appear that funds that don't choose to keep shares of a private Tesla will automatically be paid $420 per share. So it seems to make little sense for them to sell today at a lesser price.

Well then wth do I know...

 

[McKricas]

I don't know who's selling, but I'd like to point out that now that the Saudis have made their intentions clear, they can acquire as much stock on the open market as they like -- or at least up to 20% of the shares outstanding. Ouch.

They have to file within 10 days of crossing the 5% threshold. They will have to decide whether to file as "active investors" or "passive investors" -- if they file as passive they can keep accumulating up to 20% before declaring themselves active. If they file as active they can still keep accumulating indefinitely.

But they'll want to file as passive, because if they're active, then they are potentially "obtaining control", which subjects them to CFIUS review, which is a wild crapshoot.

There seems to be an obscure Delaware rule that if you make large open market purchases you need board approval to do a squeeze-out later, but that's OK, they'll get board approval.

Tender offers and open market purchases seem to be *very* lightly regulated. The Saudis can buy up as much as they like now with no ill effects to any attempt to make a tender offer.

So, they could be scooping up as much as 20% of the stock right now.

20% of ~200 Million outstanding shares are approximately 40 Million shares @ $350 = ~$14 Billion

Much cheaper...BUT, I don't think they will do that without Elon's approval.

Now, of course, they can go up until 10% or 15%...and that would be a MUCH more reasonable position for the Saudis to go private (with just ~10 Billion) without raising concerns ...

 

[croman]

Citation for what percentage triggers CFIUS review, please. What I see is "could result in foreign control".

The rule for "control" is, anything over 20% is considered control, anything under 5% isn't, and between 5% and 20% you have to make a filing with the SEC declaring your intention.

Unfortunately CFIUS is incredibly opaque. Even judicial review is super secretive. I've been involved in one corporate transaction that was subject to CFIUS review and it wasn't pretty. I only handled the IP side of things but that's particularly where the Treasury is interested in scrutinizing.

I sincerely doubt the US would let Saudis into such a valuable US enterprise with direct connections to SpaceX (definite verboten).

 

[bhzmark]

Citation for what percentage triggers CFIUS review, please. What I see is "could result in foreign control".

The rule for "control" is, anything over 20% is considered control, anything under 5% isn't, and between 5% and 20% you have to make a filing with the SEC declaring your intention.

§ 800.302(b) regarding the Committee's treatment of transactions in which a foreign person holds or acquires ten percent or less of the outstanding voting interest in a U.S. business solely for the purpose of passive investment.

31 CFR 800.302 - Transactions that are not covered transactions.

It's a safe harbor. Can still be ok above 10% but below 10% and passive isn't even covered by CIFIUS. Above is within CIFIUS jurisdiction.

 

[beachbum77]

Great point. There's also a high probability (and we can argue how high) that Tesla gets taken private at $420. So shorts are now playing a dangerous game. For them it used to be about bankruptcy or valuation, now it is about something very different: how certain is it that Tesla goes private at $420? So the rationale and risk of being short are now very different than they were before this news broke. I'm guessing here, but I don't think that's the kind of bet Einhorn or perhaps even Chanos wants to make.

Probably for the same reasons anyone is selling today.

1) They see a privatization as unlikely.
2) They see the price falling when that becomes apparent.

So sell now and buy back in at the new lower price. In the meantime, buy some call options just in case a deal does go through.

 

[Krugerrand]

420 - time value - chance of no deal + chance of deal at higher price.

No time value if you buy shares. I’m of the opinion the deal goes through but even if it doesn’t profitability is coming and SP will see $420. No sympathy for gamblers of options etc...

 

[neroden]

No spin needed. It is the blog post itself:

"Following the August 7th announcement, I have continued to communicate with the Managing Director of the Saudi fund. He has expressed support for proceeding subject to financial and other due diligence and their internal review process for obtaining approvals. He has also asked for additional details on how the company would be taken private, including any required percentages and any regulatory requirements."

This is FAR from a done deal. Then you have this tidbit:

If and when a final proposal is presented, an appropriate evaluation process will be undertaken by a special committee of Tesla’s board, which I understand is already in the process of being set up, together with the legal counsel it has selected. If the board process results in an approved plan, any required regulatory approvals will need to be obtained and the plan will be presented to Tesla shareholders for a vote.

"IF"? This was clearly written by his legal staff. They are trying to get him off the hook for his "Funding secured" comment. But it may not work. One director's "commitment" means nothing with the Saudis. There are apparently no written commitments, no Letters of Intent. All there seems to be is Musk's "understanding".

Which is enough to say "Funding Secured". As confirmed by M&A lawyers! Verbal agreement in principle is plenty for "funding secured".

Once the Saudi's get access to the books in their DD, you can probably kiss this deal goodbye.

You believe that because you are a delusional fool who is not paying attention to the fundamentals of Tesla's business.

 

[AWDtsla]

Nowhere in the blog from today does it say 'the Saudi agreed to pay $420 per share'. What it says is that Musk wants to take it private at $420. I think it's pretty obvious that he pulled that number out of his *** for his first tweet in order to burn the shorts, failed, and now with the help of his lawyers is publishing this 2nd blog to cover his ***.

You guys are getting desperate.

 

[bhzmark]

My gut read is that Elon needs to hire better lawyers and keep them on speed dial.

Wachtell represented Tesla and Skadden represented SolarCity in that transaction. They've been through these things before. Hopefully Wachtell is still representing Tesla and Elon now has Skadden or someone equally good.

 

[Krugerrand]

I don't know who's selling, but I'd like to point out that now that the Saudis have made their intentions clear, they can acquire as much stock on the open market as they like -- or at least up to 20% of the shares outstanding. Ouch.

They have to file within 10 days of crossing the 5% threshold. They will have to decide whether to file as "active investors" or "passive investors" -- if they file as passive they can keep accumulating up to 20% before declaring themselves active. If they file as active they can still keep accumulating indefinitely.

But they'll want to file as passive, because if they're active, then they are potentially "obtaining control", which subjects them to CFIUS review, which is a wild crapshoot.

There seems to be an obscure Delaware rule that if you make large open market purchases you need board approval to do a squeeze-out later, but that's OK, they'll get board approval.

Tender offers and open market purchases seem to be *very* lightly regulated. The Saudis can buy up as much as they like now with no ill effects to any attempt to make a tender offer.

So, they could be scooping up as much as 20% of the stock right now.

They won’t do it unless Elon says go for it. This is clearly ‘cooperative’ or they wouldn’t have kept talking to him to try and make the privatising deal. They’ll play ball by Elon’s rules.

Yes, opinion. (But I’m certain )

 

[bdy0627]

In what context? Everyone selling is guaranteed $420 if they just wait.

Short term indicator traders will focus on. Again, this is just short term stock action. If that Thursday low of day should be breached, there would likely be even better buying opportunities shortly.

 

[neroden]

The issue is whether "funding secured" is fraudulent when the underlying details are that at the time the funding commitment consisted of what was described in the recent communication -- basically an oral statement of intent with conditions of due dili and internal approvals.

There was a quote from an M&A lawyer in one of the ArsTechnica articles which said that that an oral commitment is ALL you need to say "funding secured". I would tend to believe the opinion of an M&A lawyer regarding the technical meaning of "funding secured".

 

[Krugerrand]

View attachment 325368

I know what it means. Wait for it...

 

[defc0n]

Short term indicator traders will focus on. Again, this is just short term stock action. If that Thursday low of day should be breached, there would likely be even better buying opportunities shortly.

My stop loss hit on one of my accounts sometimes TSLA can be infuriating.