Tesla Stock Is Dropping … For the Least Surprising Reason

Advertisement

TSLA stock - Tesla Stock Is Dropping … For the Least Surprising Reason

Source: JD Lasica via Wikimedia Commons

“C’Mon … you can’t really be surprised Tesla (NASDAQ:TSLA) isn’t going private.” That’s the essence of the message TSLA CEO Elon Musk delivered to owners of TSLA stock late Friday, ending two weeks of innuendo that the publicly traded company would likely be going private.

Instead, Musk says he now believes “the better path is for Tesla to remain public,” adding to his official statement “the Board indicated that they agree.”

Thus ends another frenzied chapter of the Tesla saga, with the company exactly where it was when the matter was first stirred up by Musk’s Aug. 7 tweet, “Am considering taking Tesla private at $420. Funding secured.”

In retrospect, however, no TSLA stock owner can truly claim to be shocked or disappointed. Even without Musk’s penchant for hinting at events and outcomes that can’t be delivered, his handling of the go-private deal — if there ever was a firm one on the table — was suspect from the beginning.

More Questions Than Answers for TSLA Stock Owners

Chief among the red flags? The vast majority of the time a publicly traded organization wants to go private, they don’t say a word about it.

That’s not to say word doesn’t get out. Leaks happen. By and large though, the private equity firm or fund sets as a condition of the deal that nothing be said by the target company or its executives about it, as it can (and often does) drive the total cost of the acquisition higher. Tweeting that it could happen probably would have violated the buyer’s terms.

Just as suspicious was the lack of confirmation from the other players on the stage.

Take, for instance, Musk’s tweet from Aug. 13 that he was “excited to work with Silver Lake and Goldman Sachs” as the privatization process moves forward.

It makes sense, on the surface. Goldman is an investment bank and advises organizations doing such deals. It’s curious, however, in the sense that Goldman is anything but a believer in the electric car company. Goldman Sachs — at the time anyway — rated TSLA stock a “Sell,” sporting a price target of $210. More often than not, a publicly traded entity would choose an outfit it was on better terms with.

Whatever the case, Goldman did suspend analytical coverage of Tesla stock two days later, explaining that it would be “acting as a financial advisor in connection with a matter that is fundamental to the reasonable analysis of the rating and price target for the stock.”

That didn’t happen until two days after Musk tweeted it though, and Goldman never explicitly said it would be acting in the capacity of a privatization advisor (although there’s little else it could be).

It’s possible the deal wasn’t even broached with Goldman until after Musk tweeted about it, forcing Musk to make good on his claim after-the-fact.

Last week, Morgan Stanley also dropped analytical coverage of TSLA stock around the same time Musk tweeted it too was serving Tesla as an advisor. Like Goldman though, Morgan Stanley wasn’t exactly bullish on Tesla when the deal was inked. Its price target was only $300 at the time, down from a previous target of $379 … well below the $420 Musk said he was hoping the buyer would pay. The selection of Morgan Stanley, however, also tacitly underscored worries that the funding Musk suggested was “secured” was never all that secured.

All investment banks can connect people with capital with organizations that need it. Morgan Stanley, however, excels at it. If Musk needed to tap the firm two weeks after telling shareholders that funding had been secured, it may have never been quite as secured as initially hinted.

To that end, though Musk didn’t initially suggest that the group interested in acquiring Tesla was the Saudi Arabian sovereign wealth fund, it was a reasonably good assumption. The fund’s representatives and Musk had met several times in the recent past, and the fund owns roughly 5% of Tesla’s outstanding stock. Clearly there’s some interest there.

The Wall Street Journal reported on Aug. 13, however, that the Saudi fund was “struggling to find ways to finance its existing commitments.”

The Last Word

A complete fabrication? A half-truth? Just a misguided voicing of misinterpreted conversations? Did Musk say something that was material-but-not-factual, and then have to make it factual? Or, was it all just an effort to flush the short-sellers out of there trades, and keep them away for good?

It’s likely nobody will ever really know how much substance there was to the matter, especially now that it doesn’t matter. Given Musk’s history for making off-the-cuff claims and setting unreasonable expectations though, it wouldn’t be out of line to assume that little he said during the past two and a half weeks was as ironclad as he was making it out to be at the time.

In the meantime, Musk just wasted a little more of his already small supply of credibility currency.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/08/tesla-stock-is-dropping-for-the-least-surprising-reason/.

©2024 InvestorPlace Media, LLC