Wall Street sees funding hurdle to Musk's plan to take Tesla private

Wall Street sees funding hurdle to Musk's plan to take Tesla private

Tesla Inc.'s board confirmed it knew last week about Elon Musk's proposal to take the electric-car maker private, adding credence to the idea that this was more than a spur-of-the-moment whim from the notoriously impulsive billionaire.

In a release, board members Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice, and James Murdoch said Musk opened the discussion last week.

The Tesla board responded to the proposal earlier Wednesday morning, indicating that it is evaluating things.

"It's very hard to put leverage on this company", due to its negative cash flow and "operational issues", Scott said Wednesday on Bloomberg Television.

Investors also seemed to be hesitant of the deal.

Tesla shares fell as much as 3.4 per cent to US$366.52 before the start of regular trading, though they pared declines after the board statement.

Musk mused Tesla could be bought back at $420 per share.

More news: Hurricane Hector tracks toward Hawaii
More news: Brexit deal chances are "60 to 40"; Liam Fox blames EC intransigence
More news: Student poses with giant gator for graduation photo

Neither Elon nor Tesla has said yet where it's getting the money to go private.

Musk set a price of $420 a share, substantially above the stock's current trading price and Tesla's all-time closing high of $385 a share.

Neither Musk nor the board have said where the "secured" funding would come from.

The issue of share accumulation by outsiders emerged only recently as reports that Saudi Arabia's public investment fund had built up a stake from 3 to 5 percent after its offers of purchase of new shares in Tesla were spurned by the company.

"What does Musk mean by 'funding secured?"' asked Toni Sacconaghi, an analyst at Bernstein who has always been bearish on Tesla shares.

Of course, now that Musk has stated that he has secured the funds to do so, he may need to carry it out lest he face accusations of stock manipulation, according to FT, as the mere announcement of having the funds to take the company private caused Tesla stock to rise by 11 percent. "And if you stay as a shareholder you get less information than before and you depend more and more on Elon Musk".

"Distraction or not, the move feels right even if Musk is downplaying how supportive public markets have been". "Your disclosures should create certainty in the market so that everyone has a fair and complete understanding of what is going on", Goody said.

Related Articles