(Reuters) – Tesla Inc's Chief Executive Elon Musk's proposed $ 72 billion (£ 56.46 billion) acquisition poses a dilemma for investment bankers: ignore worries about how feasible it is or risk missing it What this year could be biggest and best-known acquisition.
FILE PHOTO: A Tesla Sales and Service Center will be shown on June 28, 201
Musk not only surprised investors and analysts earlier this month On Twitter, he announced that he would consider privatizing the electric car maker in the US. He also sent shockwaves through the investment banking world, both excited and irritated with the news.
That's because no Tesla company was ever privately taken by financial investors, as Musk has suggested, unlike a larger company. In addition, the standard method of saddling the company with debt in a leveraged buyout is not an option for Tesla, as it already serves around $ 11 billion in debt and does not make any money. It had an operating loss of $ 1.6 billion in 2017.
The debate over the feasibility of the business has polarized bankers. During a teleconference at an investment bank last week, the discussion hinted at whether the deal was a great opportunity or a fool's visit became a vociferous match, according to one of the bankers' details on the condition that neither he nor the bank decided have no role to play, are disclosed. "Given the size of the business, the debt capacity and the cash flow of the company, bankers seem to be similarly skeptical about this deal, which will happen in the foreseeable future," said Stefan Selig, former Bank of America Corp banker and founder of Financial Services. and strategy consulting firm BridgePark Advisors LLC, which is not involved in the business.
Bankers seeking advice on the deal are recruiting Musk and Tesla's special board committee, which will independently review the merits of Musk's anticipated bid. The work for Musk could also be associated with a reputation risk, as the US Securities and Exchange Commission investigates the true accuracy of its claim on Twitter that funding for the business was secured, it said.
However, many bankers said that, given the scale of the possible deal, this would not have a deterrent effect.
"That's probably not enough to get a banker's opinion of whether or not there's a chance," said Ted Smith, co-founder and partner of Union Square Advisors, a technology boutique investment bank. Union Square is not trying to win a role in the Tesla deal.
Musk, who owns about a fifth of Tesla, said in a blog post last week that the effective size of the business would be much smaller than the cheapness of its $ 72 billion offer, because, according to its estimate, two-thirds shareholders The company would choose the option that it offers them to "roll" their shares and continue to be investors in a private company, rather than having them paid out.
Musk also said that Saudi Arabia's PIF, which became a Tesla shareholder at just under 5 percent earlier this year, could help finance the cash portion of the deal by having sources close to the secret sovereign wealth fund to this prospect.
There is no precedent for major institutional shareholders and thousands of mother-and-pop investors participating in a transaction of this size. Legal experts have warned that the implementation of a regulatory minefield would be necessary. If the deal were structured like a leveraged buyout, Tesla's advisors could earn $ 90 to $ 120 million in fees, while Musk group investors could earn $ 30 to $ 50 million, and debt financing fees could reach $ 500 million Financial Advice Freeman & Co.
However, if the Tesla deal is made with equity partners and little debt, as Musk envisioned, Freeman's fees would be much lower, making it a trophy rather than a lucrative bid for bankers , Last week, the bankers at Goldman Sachs Group Inc. decided to take the plunge by consulting Musk. Goldman's bankers have been closely associated with him for more than a decade and led Tesla's IPO in 2010. Goldman Sachs declined to comment.
Morgan Stanley stock research analysts said Tuesday they had stopped reporting on Tesla, and sources confirmed that the bank was also close to hiring Musk.
Tesla declined to comment on this topic.
Although Morgan Stanley is currently advising prospective Tesla rival Lucid Motors Inc to attract a potential investment from PIF, sources told Reuters. Morgan Stanley has been a top financier of Tesla over the years, making him a prime candidate to arrange any needed debt financing, the sources said.
Morgan Stanley declined to comment. Still to be awarded is the mandate of the Financial Advisory Board, which is awarded by the Tesla Special Committee. Evercore Partners Inc., which advised Tesla on the $ 2.6 billion acquisition of SolarCity two years ago and also advises PIF on its potential investment in Lucid Motors, is one of the banks to advise Tesla's special committee, sources said , Evercore declined to comment. Other investment banks competing for the financial advisory role of the Tesla Special Committee are Centerview Partners, Lazard Ltd, Moelis & Co and Perella Weinberg Partners LP, according to the sources. The banks have not responded to requests for comments.
This story corrects the first paragraph to make a clear dilemma: investment bankers need to "overlook" concerns, not "pay attention"
coverage by Liana B. Baker and Carl O'Donnell in New York; Additional coverage by Harry Brumpton in New York; Editing by Greg Roumeliotis and Lisa Shumaker