For Tesla, ‘going dark’ might not be so easy 


Simply going dark is a multistep process. The exchanges need several days notice of the plan, and the public has to be informed at the same time. Then forms are filed with the SEC, one to notify it of the delisting and another to deregister the shares if the company has 300 or fewer shareholders. But if the shareholders aren’t bought out with cash, the shares continue to trade, moving over to the more thinly traded over-the-counter market.

Going private requires cash to buy out the minority shareholders, usually through a merger, tender offer or reverse stock split.

But Musk’s proposal adds a complicating factor.

He has said he wants to preserve a broad ownership of Tesla as a private company. That might be impossible for the mom and pop investors in the stock now who don’t qualify to invest in private companies as accredited investors. If they want to keep their ownership, it might have to be through a special purpose fund, something Musk has mentioned.

And that special purpose fund might have to be publicly traded, Morningstar’s David Whiston said.

“Issues around regulatory approval come to mind because it is unclear how Tesla will allow retail investors who are not accredited investors to own stakes in a private Tesla,” he wrote in a note this week. “That issue is why we think the special-purpose vehicle Musk pointed to in the Aug. 7 email may have to be publicly traded.”

Tesla said Tuesday its board has set up a special committee to examine Musk’s idea. Lawyers for the committee and the company have been hired, and Musk has tweeted that he has his own advisors, including the private equity firm Silver Lake, which is said to be interested in a possible investment.

The special board committee, including directors Brad Buss, Robyn Denholm and Linda Johnson Rice, hadn’t reached any conclusions about “the advisability or feasibility” of a transaction and that it could consider alternatives, Tesla said Tuesday. Shareholders would also have to vote on a transaction, lawyers and advisors said.

That’s another complicating factor, lawyers said. There’s no guarantee that enough shareholders will agree or that enough will want to sell their shares at Musk’s suggested $420 price to get Tesla’s shareholder count low enough to deregister the shares. Whiston estimates about 40 percent of the shareholders might take the money, and that would cost about $28.7 billion.

Depending on state law, he’d have to get a super majority of shareholders (in Delaware, it’s 90 percent) to be able to squeeze out any holdouts, lawyers said. But Musk has said there will be no forced sales.

Its biggest investors, aside from Musk himself, are mutual funds and money managers in addition to China’s Tencent and Saudi Arabia’s sovereign wealth fund. Collectively this group holds about 66 percent of the shares. About 17 percent are owned by investors who are too small (either in the amount of Tesla they own or the size of their portfolios) to have to report their stakes. Musk has said he believes two-thirds of Tesla’s shareholders will stick with it as a private company.

The deal could turn out to be as unique as the collection of space transportation, electric automobile, high-speed transportation and solar power generation projects Musk has cobbled together in his business empire.

“There is a recipe for going private, but like everything else, Elon Musk does it his own way,” said Barry Genkin, a partner at law firm Blank Rome. “He hasn’t put any meat on the bones and everyone is scratching their heads about what he means.”

Source : CNBC