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All this guesswork about how many current shareholders will convert to private shareholders is fine, but let's not overlook the value of private shares. It's not the $420 cash out value that is critical, but the value of private shares that will animate this deal.
So let's start from the end and work backwards. Here's my view. Tesla will re-IPO after or as Elon completes the requirements for his CEO package. Indeed, a key motivation for Musk to take Tesla private is to derisk and hasten the time it takes to get to a $650B market cap (under private company valuation). Under the re-IPO this conservatively valued $650B company could fetch upwards of $1T. It will have massive scale, market share, brand power, profitability, massive cash flow, and will still have lots of growth upside. So the re-IPO could be glorious. So let's say in 2027 Tesla is worth $650B to $1000B on some 166M shares (they buy a few back). Thus, we have $3900 per private share up to $6000 per public share in 2027.
So what would you pay for one of these private shares this year? Personally I think $525 per private share is a good price. This implies a 25% annualized rate of return over the next 9 years on private shares or up to 31%/y return on re-IPO shares.
The buyout price $420 is 20% below this $525 value. So that is a real favorable price for buying out reluctant public shareholders. It should not be hard for a private investor who shares this view to promise to put up the cash for the buyout. But once it becomes clear that the transaction is on, they have a tremendous opportunity to scoop up public shares as low as $350, 20% below the $420 buyout price. Moreover, many other investors might also realize that they too see huge value in the private shares. Thus, future private shareholder will buy up common shares well before the conversion date. If there is some 30M shares that need to cashed out, they could be obtained is low as $350 or $10.5B well below the value of $525 per private share, or $15.75B. That is, private investors can acquire the shares they want in range of $350 to $525 per share. Likewise, shareholder who chose not to go private can cash out anywhere in this range, but need not accept a price any lower than $420. Even if there were no shorts to squeeze (and there are 35M shares worth of them), this transaction could generate an equilibrium price as high as $525. It all depends on just how much demand there is for private shares. Throwing desperate shorts into the mix can add a certain pop to the whole thing, but it doesn't really change the equilibrium going into the consummation of the transaction. It also does not really matter if the cash out price is raised. It could go as high as the equilibrium and not really change the equilibrium price.
The ultimate value of a common share depends on the value of the private share and how well investors see that value. Even those shareholders who will cash out some or all of their common shares will want to focus on the value of the private share and encourage others to recognize that value. If that value be $525 as I think it is, then holdout for that price.
As I discussed this matter with coworkers today, I could tell that many of them were waking up to the idea that holding private shares could be a great investment, better than the much maligned common shares. People still want to buy into the dream, butthey have been turned off by the nightmare sheetshow that the stock has been put through. A fresh start with a lower profile could really breathe new life into holding equity in Tesla. I think it will help a lot to get a private prospectus out, so potential private investors can take a serious look.
I am optimistic that there will be ample demand, just as there is for the Model 3.
