Share Investor: April 2021
3. A Corporate Investor: There is one final possibility that I considered and it is that a corporation with deep pockets would provide the money needed to take Tesla private. While they have the cash and perhaps may even have the interest, Musk's follow up that he would continue to run the company and hold on to his ownership stake strikes me as a poison pill that no corporation will want to swallow. Bank of America Corp ( BAC ) - Bank of America Corporation bounced off the 10 day moving average this morning but is now trading back below $17.93. I guarantee that investors who stick like glue to a trading plan are the ones who make NOT LOSE MILLIONS of dollars in their activities of online investing. Ensure that you just use capital that you could manage to lose if you plan on making these kinds of investments. He has to use his creative imagination. In the context of some of these critiques, there was discussion of how my valuation incorporated (or did not incorporate) the expected dilution from future share issuances and what share count to use in computing value per share. In fact, let's face it: this is the way even assets that have intrinsic value are evaluated for the most part.
On the other side, many of the short sellers in Tesla seem to be just as obsessed with Musk and are convinced that he is a scam artist. This entire post has been premised on the notion that Elon Musk had done his homework and that he intended to send a serious signal to markets about a future buyout. So, it is true that short sellers are a distraction to the company, but only because Elon Musk has made it so. If the statement is true, he has either found an inept bank that will lend tens of billions to a money losing company with an undisciplined CEO, or a private equity investor who is willing to make the largest PE investment in history, while allowing Musk to continue running the company, with no checks and balances. In his set up, existing shareholders will be allowed to exchange their shares in Tesla, the public company, for shares in Tesla, the private business, and those shareholders who are unwilling to take this offer will sell their shares back to the company at $420/share. The second is that even if Tesla manages to get regulatory approval for this unconventional set up, many shareholders may choose to cash out at $420, if the company goes private, even if they think that the shares are worth more, because they value liquidity.
Just as it is dangerous to fall in love with a company that you have invested in, it is just as dangerous to bet against a company because you hate its management and want it to fail. 2. A Deep-pocketed Outsider: The announcement that the Saudi Sovereign fund had invested $2 billion in Tesla shares came just before Musk's "going private" tweet, setting up a second possibility, which is the a large private equity investor (or several) would step in to fund the deal. They have and are invested in young, growth companies: Unlike traditional PE investors whose focus has been on doing leveraged deals of cash-rich companies, Softbank has invested successfully in growth companies, many of whom continue to burn through cash. As a publicly traded company with a market capitalization of $103 billion, making a $55-60 billion additional investment in Tesla would be a reach, but Softbank is capable of drawing other investors of its ilk into the funding. They have a history with Tesla: There were rumors last year that Tesla and Softbank had talked about taking the company private, but control disagreements caused negotiations to break down.
A break above $6.20 would be very bullish. This was definitely not one of the brightest moments in boutiques market history. Given Musk's history of impetuous and personal tweets, that premise might be completely wrong, in which case the explanation for this episode may be far simpler and rooted in the war with short sellers that Musk has been fighting for a while. That is why I hope, for Tesla's sake, that Musk's personal dislike of short sellers did not lead him to tweet out that Tesla would go private. Musk is convinced, rightly or wrongly, that short sellers in Tesla are conspiring to bring not just the stock price, but the entire company, down. That said, I am not sure that Elon Musk and Masayoshi Son (Softbank's CEO) can co-exist in the same company. The drama will undoubtedly continue, and in a world where we get much our entertainment from reality shows, the Elon Musk show is on top of my list of must-watch shows.