Markets aren’t buying Elon Musk’s definition of “funding secured”

“So when I said ‘funding secured,’ what I meant was…”
“So when I said ‘funding secured,’ what I meant was…”
Image: Reuters/Brian Snyder
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Nearly a week later, Elon Musk has revealed what exactly he meant when he said he had “funding secured” to take Tesla private at $420 per share. Faced with lawsuits from flummoxed shareholders, Musk said in a blog post that his apparent partner in the venture is the Saudi sovereign wealth fund.

On Aug. 7, Musk roiled markets with a terse tweet:

The electric car company’ shares were trading at around $356 at the time. At the time of writing, shortly after more details about the financing were published, Tesla’s shares are lower, at around $352.

Musk’s account is that over the past two years or so, the Saudi fund approached him “multiple times” about taking Tesla private. After the fund bought a 5% stake in the company on the public markets, the news of which came out shortly before Musk’s Aug. 7 tweet, the Saudis asked for another meeting at the end of July and “expressed regret” that Musk hadn’t gone ahead with the buyout already. Musk added that the managing director of the fund “strongly expressed” support for a deal and that he believed no other decision makers would be needed. And so, Musk said:

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. This is why I referred to “funding secured” in the August 7th announcement.

Does that funding sound “secured” to you? Investors aren’t buying it. In early trading on Monday morning, Tesla shares fell by more than 1%. By comparison, on Aug. 7, Tesla shares rose 11% on the day before traders got any more details about the buyout beyond a few tweets. Since then, Tesla’s share price has fallen about 8% and remains a long way from the purported $420-per-share buyout price. Takeover targets often trade at a discount to an offer price, reflecting the risks of a deal falling through, but the 16% discount that Tesla trades relative to Musk’s “offer” is very, very wide.

This won’t help: Musk notes that the support of the Saudi fund is “subject to financial and other due diligence and their internal review process for obtaining approvals,” along with “additional details on how the company would be taken private, including any required percentages and any regulatory requirements.”