The Tesla Inc (Nasdaq: TSLA) board of directors is reportedly planning a meeting next week to formally review CEO Elon Musk’s $420 per-share offer to take the company private. The board will review the details of the proposal with financial advisors and decide whether or not Musk’s plan is viable, but several Wall Street analysts remain extremely skeptical.
CNBC reported on Friday morning that people familiar with the matter say the Tesla board of directors will likely ask Musk to recuse himself from next week’s meetings. Musk has not publicly revealed details of the potential offer, but sources say he has been in discussions with Saudi Arabia’s wealth fund to take Tesla private. The Financial Times reported earlier in the week that the Saudi Public Investment Fund has already taken a 3 to 5 percent stake in Tesla.
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After briefly rocketing from around $340 per share to as high as $387 on Wednesday, TSLA stock has since traded back to $350 after Musk failed to provide any further clarity on the situation. Several Wall Street analysts have questioned the viability of a potential deal given the high reported valuation and Tesla’s precarious financial situation.
“A Tesla [leveraged buyout] does not appear to be feasible, in our view, even with less than $10 billion of incremental debt,” Morgan Stanley analyst Adam Jonas says.
Instead, Jonas says the most likely path for Tesla going private would be a complicated equity buyout scenario.
“We believe Tesla could consider an auction for its shares in the private equity market, financed by existing shareholders, new strategics, divestiture of valuable captive assets and possibly some help from SpaceX,” Jonas says.
Bank of America analyst John Murphy says it’s plausible that Tesla could raise the minimum $7 billion needed to take Tesla private from Saudi Arabia and/or China if all existing TSLA stock holders choose not to sell.
“However, if some or all existing shareholders became sellers, the capital to execute the transaction could rise as high as $57 billion,” Murphy says.
Murphy says finding that amount of funding would be an uphill battle.
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“TSLA’s ability to become self-funding at any point in the near future appears no more certain now than at its inception, in our view,” Murphy says.
Morgan Stanley has an “equal-weight” rating and $291 price target for Tesla. Bank of America has an “underperform” rating and $200 target for TSLA stock.
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Tesla Inc (TSLA) Board Will Review Musk’s Offer originally appeared on usnews.com
