A tweet by Elon Musk saying that he was considering taking the company private, stunned the investors and stock market alike. The stock gained 7% value taking it to $360 per share post the announcement. Trading on the stock had to be halted for almost an hour and a half.
Elon Musk claimed that he has secured funding to the tune of $420 per share taking the market valuation of Tesla to around $82 billion. The stock closed at around $380 at the end of day’s trade.
Later in the day, in an e-mail to Tesla employees Elon Musk explained why he had been considering such a huge move. He wrote, “As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.”
Although the decision to go private could not be finalised without the nod of the shareholders, Musk said that he would retain the 20% share he owns in Tesla, irrespective of the decision of the shareholders.
He added, “I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or they can be bought out at $420 per share, which is a 20% premium over the stock price following our Q2 earnings call (which had already increased by 16%). My hope is for all shareholders to remain, but if they prefer to be bought out, then this would enable that to happen at a nice premium.”
Elon Musk also said that going private would give the company independence to work towards long term goals. He explained, “I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve.”
He continued, “I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible.”