Tesla CEO Plans to Turn Company Private: What Does That Mean for Shareholders?

Tesla CEO Elon Musk has announced his intentions to turn Tesla into a private company. In a Tweet sent on August 7th, Musk claimed, “Am considering taking Tesla private at $420. Funding secured”.

Tesla was founded in 2003, and has become renowned for creating the most high technology, innovative electric vehicles in the world, with cars starting at just over $100,000. Tesla has been a public company since its opening, with stocks currently trading at $338.69 USD.

As a result of the privatisation, shareholders and investors will no longer be able to trade their shares in the company. In another tweet to his 22.3 million followers last Tuesday, Musk made suggestions for his stakeholders following a potential privatisation.

“Shareholders could either to sell at 420 [dollars] or hold shares & go private,” Musk said on Twitter.

Companies are typically made private two ways. A management buy-out (MBO) involves internal management gathering all company resources to take control of the entire business, and disallowing shareholders from placing stakes in the organisation. A management buy-in (MBI) involves external management buying the company outright, and replacing the existing management team. Should they be made private, Tesla will be undergoing a management buy-out, whereby Musk will purchase all existing shares in the company that he does not already own for $420 USD per share.

Going private generally implies issues with debt and financial difficulties. Musk, however, has denied claims of any financial stresses. The CEO has reportedly been in discussions with Saudi Arabia, who have been encouraging the privatization and have proposed financial support for Musk should he follow through with privatisation.

“Going back almost two years, the Saudi Arabian sovereign wealth fund has approached me multiple times about taking Tesla private,” Musk said in a blog post.

“Obviously, the Saudi sovereign fund has more than enough capital needed to execute on such a transaction.”

Since Musk’s announcement, Tesla have been issued a subpoena from the Securities and Exchange Committee (SEC) to begin a formal inquiry into Musk’s claims. It is alleged that Musk’s statement regarding funding being “secured” has come under scrutiny by the SEC, whose regulations claim that any statements from company executives must be true.

The subpoena has reached formal stages as stakeholders await results regarding the privatisation.