Tesla Going Private: How Will It Affect the Company?

With all the talk of Tesla CEO Elon Musk taking his company private, investors are starting to wonder how they are going to ride along with the expected waves of changes that come with the privatization idea. Will this move ramp up the company’s production of innovative electric cars or will this turn the tides against the company?

The market was shaken when Musk tweeted on August 7 about his plans of Tesla’s transitioning into a Private company with a buyout share price of $420. Furthermore, he tweeted that the funding has already been secured. Remarkably, following his tweet, the company’s shares rose up to 11%. That same day, news broke out via Financial Times that the public fund of Saudi Arabia had acquired about 5% or $2 billion worth of stake in the company.

Why Is Tesla Going Private?

In a blog posted on August 13, Musk revealed he had been in negotiation with the Saudi Arabia fund regarding Tesla’s privatization move. Many are skeptical about Musk’s privatization move. In the first place, why would Musk want to make his company a Private one when Tesla has reaped significant benefits for the eight years that it was publicly traded?

There are several reasons why a public company would ultimately opt to go private. For one, unlike public companies, private companies have reduced regulatory and reporting requirements. This would mean that the company can have more time and resources to spend on its long-term agenda.

This just seems to be the idea behind Musk’s controversial decision. In fact, in an email sent to Tesla employees Musk made it known that he came up with the decision as he found several reasons a public company is less than ideal as enumerated below:

1) Being a public company can be a substantial distraction.

2) It subjects the company to the quarterly earnings cycle, thereby compromising long-term strategy.

3) As the company is the most shorted stock of all time, being public makes them a target of attack.

 How Will Tesla’s Privatization Plan Affect the Company and Its Investors?

So, what will likely happen should Musk really pushes through his decision to make Tesla private?

This move may send the company in hot waters if SEC or the United States Securities and Commission decide to investigate Tesla or Musk regarding the CEO’s claims of the funding secured and the massive stocks buyout price announcement.

By and large, with the privacy move, it would mean that investors of the company will have less access to transparent information which they supposedly need as they make investment decisions. With Musk’s claims about the company special funding secured, investors will need to be accredited to remain as investors for the company. And, even those who are able to stick around will have less autonomy and flexibility when it comes to buying or selling of stock shares.

Analysts are also saying that the move would mean that Musk will have more control over the company. Although Musk was quick to counter this, saying he had no intention to create more control for himself and his stake will remain at 20%.

 

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