Published: Wed, August 08, 2018
Finance | By Marshall Campbell

Elon Musk jolts Wall Street with tweet on going private

Elon Musk jolts Wall Street with tweet on going private

Several financial industry insiders were unclear why trading was halted, whether it's because Musk is trying to initiate a buyout or because he could be violating FCC regulations.

Musk's tweet comes as Tesla faces continued pressure to ramp up output of the Model 3 sedan, its first effort at the middle market. Mr Musk's offer is 9 per cent higher than Tesla's peak closing price of $US385 reached almost a year ago. But Musk says that's not what he's expecting for Tesla.

Musk explicitly notes that he does not intend to merge Tesla and SpaceX, and that the two companies will remain separate, even though the private-shareholder structure would be similar.

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It's not hard to imagine the gyrations that Tesla's stock would go through if Musk's plan was scrapped or substantially changed.

Wall Street jumped on the news, spiking Tesla stock from around $342 a share to a high slightly north of $370 in just 45 minutes.

The immediate question was whether Musk was joking.

While the decision isn't set in stone, Musk layout out a provisional plan to take the company private.

In July, Model 3 - that comes with a base price tag of $35,000 - not only had the top market share position in its segment in the United States, but it also outsold all other mid-sized premium sedans combined - accounting for 52 per cent of the segment overall.

The SEC declined to comment on Tesla, but the regulator has previously declined to sanction Netflix CEO Reed Hastings in 2013 for revealing important company information on Facebook.

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Without an official statement to back up the tweet, Nasdaq halted trading in Tesla shares shortly thereafter.

Elon Musk said he's considering taking Tesla Inc. private in a radical step that, if successful, would ease pressure on the money-losing automaker.

Intentions to buy out public shareholders usually need to be filed with the Securities and Exchange Commission, or SEC. The company had a market value of $58bn as of Monday's close.

Musk's approach to a possible go-private transaction went against the grain of many companies that release major news in non-trading hours.

Tuesday's gains following the tweet added to upward movement on the stock after The Financial Times reported earlier Tuesday that a Saudi Arabian sovereign wealth fund had built a stake of between three and five percent in the company.

While no final decision has been made, he suggested a buyout price of $420 per share.

It appears that Musk is hopeful that shareholders will simply hang in for the ride and willingly go private. Eventually, the SEC decided that companies and executives could use social media to pass along information, as long as shareholders know ahead of time to look on those platforms.

Taking Tesla private would be an extreme albeit effective way of muting Tesla's bears, according to Michael O'Rourke, chief market strategist at JonesTrading. He also wrote that "once Tesla enters a phase of slower, more predictable growth, it will likely make sense to return to the public markets".

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