Background
Elon Musk first mentioned the possibility of buying out Tesla Inc. in a tweet that sent shockwaves around the stock market in early August 2018. This led to speculation regarding the specifics of what would eventually become the largest corporate buyout in history, with Forbes calling it one of the “most daring entrepreneurs” of the modern age. Musk revealed the full details of his planned buyout deal shortly after, setting in motion a process which would ultimately prove beyond successful.
Under the plan, Elon Musk proposed to take Tesla off the public market by purchasing all the outstanding shares with $420 per share rationale. This was a significant premium on the market rate at the time, resulting in a total value for the company of $72 billion. Musk suggested the use of leveraged financing in order to accomplish the buyout, knowing that many shares could be sold without impacting the value of the company as a whole. He wanted to keep Tesla as a private entity, believing that it could be run more effectively this way and that it could remain competitive in the long run.
Reaction
The announcement was met with shock and praise in the business world. The CEO’s of many publicly traded companies like Microsoft and JPMorgan Chase showed great admiration for Musk and complimented his audacity and courage. Wall Street also showed great appreciation and confidence in his plan as they appeared to disregard the looming possibility of a legal battle given the large number of shareholders to be taken into consideration.
Musk was also praised for attempting to take Tesla out of the public market which had previously led to a series of struggles for the company. Many attributed Tesla’s inability to achieve large-scale success to its public market listing, citing the immense pressure from investors and quarterly revenue expectations which distracted from their long-term goals. Taking the company private, Musk hoped could address all these issues and as investors began to recognize, this could create an incredible opportunity for Musk and Tesla alike.
Legalities and Resolutions
The formalities of the deal were still in question, most notably, the potential legal challenge from potential shareholders who were not consulted and were against the buyout. Musk had to face the threat of a number of lawsuits, the most significant being the one filed by investors claiming that the deal was a ploy by Musk to gain complete control of the company.
After a long discussion and review, the board finally decided that the deal offered a good chance at success. Furthermore, Tesla and Musk overcame the lawsuit in less than two months, allowing the settlement to be finalized. This settlement allowed Musk to keep the majority of his voting power and CEO position, thereby securing Tesla’s future for many years to come.
Outcome
The end result of the deal was that it was a massive success for not only Musk but also Tesla and their shareholders overall. The decision to go private enabled greater flexibility, allowing them to make moves in line with the larger industry and stay competitive. Moreover, the deal dispelled any investor worries in regards to Tesla’s future, opening up a new era of growth and capitalization.
The buyout was also beneficial to Musk himself, as he now commands more than half of the company’s shares and voting rights. This has allowed Musk to protect and ensure Tesla’s long-term goals of electric vehicle, sustainable energy and production. Additionally, with all the associated capital commitments, it is now possible for Musk to achieve his larger vision of innovation.
Flexibility, Financials and Future
Going private, Tesla no longer needs to worry about quarterly earnings metrics and can instead focus on long-term innovation and growth. This newfound flexibility has enabled Tesla to focus on its core products, such as electric cars and solar panels, allowing it to flourish financially. Furthermore, with a much larger budget, Tesla can invest in its future projects and research, allowing the development of products such as the Powerwall and energy storage units.
Tesla is now able to benefit from a larger capital base, offering it access to an even bigger market. Going private enabled Tesla to hire better talent, develop new products and raise additional capital. Musk has also been able to use a special employee equity program to motivate top-level talent, ensuring Tesla’s future growth in the global marketplace.
Is it Sustainable?
The buyout has resulted in clear and immediate successes, with Tesla’s share price increasing by more than 40% since the announcement. Despite this, the sustainability of this success is still in question. Critics have argued that the new capital commitments are too high and will not be able to keep up with the expenditures that Tesla needs to make in order to stay competitive.
Tesla’s ambition is unmatched and with the advent of autonomous cars, the company is aligning itself with the market’s technology-driven trend. Additionally, since going private, Tesla has been able to raise more funds and is currently on the brink of record-breaking sales. This has provided some hope that the buyout deal is financially sustainable, given the successful steps the company has already taken.
Value Pre-and Post-Deal
Pre-buyout, Tesla was worth approximately $59 billion, however, the company’s value has steadily increased since then, reaching a peak of around $84 billion after its release of the 2019Q2 earnings report. This tremendous growth is a testament to the success of the buyout, with the company’s share price increasing by more than 7% with each passing quarter.
Post-deal, the company’s share price has surged by more than 150% from its initial value of $420 per share. Additionally, Musk’s own personal wealth has grown by an estimated $14 billion, showing the magnitude of effect the deal has had. This buyout has proven to be one of the most lucrative investments in modern business and more importantly a viable path towards achieving company objectives in the long run.
Impact of Key Employees
The success of the deal can be attributed to the key employees at Tesla, who have been instrumental in executing Musk’s vision. While much of the credit falls on Elon Musk himself, the contributions made by CFO Deepak Ahuja and Head of Automotive Jerome Guillen have been crucial. Ahuja and Guillen have been able to identify potential cost savings and shape strategies for long-term success.
Furthermore, the key executives have been diligent in creating and encouraging workplace innovation. This has allowed Tesla to benefit from the creativity of its employees as well as their ability to think outside the box. In this way, the key executives have been able to harness the full potential of the work force, creating a winning combination for the company in its post-buyout era.
Financial Analysis
Financial analysis regarding the buyout has returned generally positive results, although some areas still remain unclear. The company’s cash flow and balance sheet have been greatly improved since going private, providing a higher degree of stability throughout the organization. Furthermore, this deal has allowed Tesla to enter new markets and reduce costs, which have also been highly beneficial.
When reviewing the financials of the deal, it is also important to consider the long-term implications available to Tesla. As the company stays out of the public market, it has the potential to generate tremendous cash flows through higher sales and investments. Additionally, the long-term value of the buyout can be seen in the accelerated development of Tesla’s new products and services.
What the Future Holds
The future outlook of Tesla post-buyout looks strong and promising, as the company continues to execute on its strategy. With the influx of new funds and the removal of public market pressures, Tesla appears to have a good chance of becoming a global leader in the electric vehicle and energy storage markets.
Musk has also been able to ensure that his own vision and plans remain in focus, as he continues to strive for innovation and create products that fit with the company’s long term goals. This has enabled Tesla to remain competitive in the industry and provide long-term growth for their shareholders. As for the immediate future of Tesla, only time will tell.
