Tesla to Go Private: Brace for the Largest Ever Buyout

Buy or sell dice

From a not so famous Silicon Valley electric-car maker, Tesla, Inc. TSLA has become a $63-billion company in eight years after going public. But, being a public enterprise, the company had to deal with multiple issues.

The share price of the company is subject to wild swings, which in a way is a major distraction for Tesla employees, all of whom are stakeholders. Quarterly earnings results also gain immense importance and that exerts tremendous pressure on the company. Sometimes such verdicts may be good for a particular quarter but not for the long term.

Chief Executive Elon Musk, in the meantime, took a dig at short-sellers. He said that "being public means that there are large numbers of people who have the incentive to attack the company." Musk, thus, added that the primary goal would be "creating the environment for Tesla to operate best."

Tesla Could Go Private

Musk announced that they are considering a move to go private. After all, going private will "be way smoother & less disruptive as a private company ends negative propaganda from shorts," he tweeted. Musk added that "all" investors would remain loyal to Tesla even if it went private. He himself will make sure that the prosperity of Tesla shareholders are taken care of.

He pointed out that the rocket-launching company, Space X where Musk is also a CEO, is one of the best examples of a privately-owned company able to focus on a difficult long-term mission, and a possible model for the car maker.

Musk is "considering" taking Tesla private at $420 per share. Such a price indicates an 11% upside from the car maker's closing price of $379.57 on Aug 7 and 9% above the company's record close of $385 on Sep 18. Tesla, thus, have come a long way, when it went public in June 2010, opening at $19 a share, 12% above the $17 offer price.

Tesla Buyout Would be Largest in History

At the price of $420 a share, by the way, a buyout would cost nearly $72 billion, excluding debt. Tesla's market value as of Aug 7 stood at $62 billion and the company has about $10 billion in debt.

Thus, a Tesla buyout at that staggering price would easily surpass the current record for leveraged buyouts, the $32-billion deal to acquire electric utility TXU Corp. in 2007.

Here are the five largest leveraged buyouts in history, according to Dealogic:

Can Musk Pull It Off?

The idea of Tesla going private seems to be a decent one, especially, when Musk is unwilling to take the responsibilities of running a public company. However, his unexpected move in "announcing" the plan would certainly face big lawsuits and regulatory hazards.

Short sellers are devastated by his announcement. And why not? His move to temporarily propel Tesla's shares in order to force losses on short sellers could be considered as a manipulation and that is illegal. At the same time, Musk will now be under pressure to disclose whether he is serious about the buyout and how will he manage the funds.

Typical of Musk, his move seems justifiable but the means to achieve it remain unknown. Tesla currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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