Elon Musk held talks with Saudis on taking Tesla private

Elon Musk says Saudi Arabia’s sovereign wealth fund approached him about financial support to take Tesla private.

Elon Musk has been criticised for a tweet saying he had funding secured to take Tesla oprivate. Pic: AFP

Elon Musk says Saudi Arabia’s sovereign wealth fund has approached him several times over nearly two years about providing financial support to take Tesla private, as the chief executive sought to address questions after he tweeted last week that he had secured funding for a possible deal.

Mr Musk, in a blog post, also said he believed enough shareholders would be willing to hold on to their stakes that he wouldn’t have to borrow heavily to fund a buyout.

The chief executive, who owns roughly 20 per cent of Tesla, is facing criticism on Wall Street for sending tweets last week that Tesla would go private at $US420 a share, and that he had “funding secured.” The overnight (AEST) blog post still leaves more questions about how he would execute the undertaking.

Mr Musk said his “funding secured” announcement came after meeting with the Saudi Arabian sovereign-wealth fund. He said the Saudi fund approached him multiple times about going private starting almost two years ago, and that he left a July 31 meeting with the fund’s managing director believing the fund was eager to proceed.

“I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving,” Mr Musk wrote. “This is why I referred to ‘funding secured’ in the August 7th announcement.”

Mr Musk said he continues to have discussions with the fund, which has a nearly 5 per cent stake in Tesla, as well as with a number of other investors.

A person familiar with the Saudi fund, called the Public Investment Fund, cautioned that while discussions have taken place, the fund hasn’t made a detailed proposal, in part because of questions centring on its potential rights as a foreign investor.

Many obstacles remain to a deal, the person said, including the likely opposition of some top officials and the difficulty of embarking on any major new investment project. But a deal could still happen if it has the backing of Prince Mohammed bin Salman and the PIF, the person said.

A spokesman for the PIF declined to comment. Representatives for the Saudi government couldn’t immediately be reached for comment.

Still, Mr Musk acknowledged a deal to take Tesla private is far from done. The Saudi fund director suggested support is contingent on financial and other due diligence, as well as the fund’s own review process, Mr Musk wrote. The fund has asked for additional details, including on how Tesla would be taken private, Mr Musk said.

The Tesla chief also said it would be “premature” to ask shareholders to decide now on going private, as complete details of the deal’s structure and funding haven’t been provided.

Tesla Model 3 sedans on display outside a Tesla showroom. Pic: AP

Mr Musk has come under scrutiny for raising the possibility of going private without providing details. The Securities and Exchange Commission is inquiring about Mr Musk’s tweets, The Wall Street Journal reported.

“The only way I could have meaningful discussions with our largest shareholders was to be completely forthcoming with them about my desire to take the company private,” Mr Musk wrote. “However, it wouldn’t be right to share information about going private with just our largest investors without sharing the same information with all investors at the same time.”

Mr Musk and Tesla insiders together own just over 25 per cent of the company, according to FactSet. Just over 12 per cent of Tesla’s investors are individuals and others. The remaining 62.2 per cent of shares are held by institutions led by T. Rowe Price Associates, Fidelity and Baillie Gifford & Co.

Taking Tesla private at $US420 a share would value the automaker at more than $US70 billion. Overnight, though, Mr Musk said reports of that amount “dramatically overstate the actual capital raise needed.”

While it isn’t yet clear exactly how a going-private deal would be structured, Mr Musk might have to find a way around regulatory limits on shareholders in privately held companies.

He estimated about two-thirds of all shares owned by current investors would be rolled over into a private Tesla. Last week, he suggested creating a “special purpose fund” to enable current investors to stay with Tesla.

But under current SEC rules, companies must register their securities with the agency if they have more than 500 “nonaccredited” investors — individual investors below certain income and wealth thresholds — as shareholders of record. In addition, a public company can’t go private and end its registration or filing obligations with the SEC if it has more than 300 shareholders.

Tesla had 1156 shareholders of record as of January 31, according to its annual report, along with many more shareholders whose shares are held in “street name” by banks or brokerages.

The idea to take Tesla private comes after the company faced months of scrutiny over missing self-imposed deadlines to ramp up production of the Model 3 sedan, and over the impact the delays have had on Tesla’s dwindling cash position.

Mr Musk has resisted the notion Tesla needs to raise more money and has said it can turn a profit this quarter and next now that its factory is building 5,000 Model 3s a week. In his blog post, Mr Musk said it would be unwise for Tesla to take on significant debt in going private.

Dow Jones Newswires