Elon Musk has sent his employees an email explaining the rationale behind his bold suggestion Tuesday, posted on his Twitter account, that he is considering taking Tesla private at the high price of $420 per share. While the decision is still under consideration, according to Musk’s email, it marks the end of Tesla’s tenure on publicly traded markets, where it has taken investors on a roller coaster ride since its initial price offering of just $17 per share.
In the email, shared with Inverse by Tesla, Musk explains the three major factors that have made going private attractive.
For one, Tesla’s fluctuating share price is a distraction for employees, all Tesla shareholders according to the letter. Musk also rightly identified the short-termism that’s perhaps embedded into the very fabric of each and every publicly traded company, which must get on the telephone every three months and explain to shareholders the state of its finances. He also said open markets have created a class of short sellers trying to harm the company.
“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,” Musk’s email reads. “This is especially true for a company like Tesla.”
It wouldn’t be the first time that a major publicly trade technology company would go private, but it would still be pretty unusual and it’s often a tactic for revitalizing troubled firms. The main hurdle is you have to raise a lot of cash in order to be able to finance the deal, and buy out all of the existing shareholders.
Remember When Dell Computers Went Private?
One of the best examples in (relatively) recent history was Michael Dell’s decision to take Dell private back in 2013. That was a long, complicated, secretive process involving the use of code-names and backroom bargaining in order to line up enough buyers and loans to finance the $24.4 billion deal. Dell had to borrow roughly $15 billion alone with the aim of saving the business. That said, it was a risky gamble that paid off, Dell used the money to acquire growing businesses and went public again this spring.
According to Musk’s Tweets, he’s already found the funding he thinks he’d need to take Tesla off of public markets. The plan, he tweeted to anxious Tesla shareholders, was for all of Tesla’s existing shareholders to be able to sell at the named price of $420 per share, or hold on to their shares (or get a new class of shares) as Tesla enters private trading. Corporate reorganizations can be complicated!
Musk doesn’t want to merge SpaceX and Tesla, though the letter did explain that he wants Tesla to have a similar culture and governance structure, where both internal and external shareholders have the opportunity to buy or sell every six months or so. The deal would all be subject to a shareholder vote, and Musk envisions his current ownership stake remaining the same throughout at around 20 percent.