Surprise! Seventeen days after tweeting that he had "secured funding" for a transaction to privately take  Tesla at $ 420 a share, CEO Elon Musk shouted it out late Friday night.
In a post on Tesla's blog, Musk said given the feedback he had received since his first tweet, "It's obvious that most Tesla shareholders believe we're better off as a public company."
Of course, with Tesla, the true story is often found between the lines of their official statements. What did Musk say, why did he break off the buyout, and where does Tesla go from here?
What Musk said about his decision to sell it
Musk said that after talking to several investment banks and "considerable time" listening to the shareholders, several things are clear:
- The majority of Tesla shareholders believe that it is better for the company to remain public.
- Allowing Tesla's smaller shareholders to participate in a private company would have been complicated at best.
- Some institutional shareholders have restrictions on how much they can invest in a privately held company.
- The process of the private "would be even more time-consuming and distracting than initially assumed." That's bad, he said, because Tesla needs to focus on increasing the production of the Model 3 and becoming profitable.
To summarize, at least for the time being, Tesla's official conclusion is that private retreat would be too much effort and burden on its shareholders.
But I'm not sure if that's the smell test. Let us look deeper.
Why did Tesla really depose it ?
From early Saturday morning we do not have much information. But given what we know, I can think of two reasons why Musk's and / or Tesla's board might have decided to stop trying to privatize the company.
Reason # 1
: You did not like the price
Musk made another point in this blog post:
- "That is, my belief that there is more than enough funds to take Tesla privately , was reinforced during this process. "
Note that he does not say at what price there was "more than enough money to take Tesla privately."
Keep in mind that while Tesla has one of the most ever-great stories of the future, some deep tears have cropped up in this story last year. Tesla today is burdened with debt, short of cash, and is facing for the first time serious, direct competition.
It was not long after Musk's initial tweet that he might privately refrain from showing evidence that Tesla was battling for funding at his proposed buyout price. It is very possible that the banks that Musk has commissioned to advise him on the transaction,  Goldman Sachs and Morgan Stanley told him that there are no (or enough) investors for the transaction give deal with the promised $ 420 per share.
Fox Business News reporter Charlie Gasparino had a source in the discussions, probably someone who is affiliated with one of the investment banks. Gasparino reported Thursday that the deal could be a tough sell at $ 420:
SCOOP: Some bankers are unsure if they can sell @Tesla TSLA Privatization at @elonmusk 's stated price of $ 420 per share-sources; Bankers plan to pitch Musk with Steve Jobs and Jeff Bezos; they believe some investors are ready to play more on Musk sources now @FoxBusiness
– Charles Gasparino (@CGasparino) August 23, 2018
That could still be true of Musk's statement: it could well be that potential sources of funding are interested in the deal – at a much lower price per share.
Reason # 2: Due Diligence Became a Problem
A leveraged buyout requires institutional investors to ask a lot of questions. For example, does Tesla really have 420,000 pre-orders for the Model 3? Is there anything – a regulatory measure, a disclosure requirement – that prevents the company from raising money through a share issue? Are there any questions about the deal with Solar City that the company would rather not answer? When Tesla reached a production rate of Model 3 of 5,000 a week by the end of 2017 in the second quarter of last year, did the company have reason to know that this would not happen?
These and others The Tesla bears face serious questions every day. At least some of these questions, and probably others, are also being filed by the Securities and Exchange Commission, which is reported to be investigating Tesla.
Keep in mind that any major investor in a going-private transaction prior to these investments would insist on careful due diligence on these and other issues. It is possible that Musk (and / or Tesla's board of directors) decided that the benefits of the private are not worth what could happen if it had to answer these questions completely.
Where is Tesla going from here?
In a tweet on Wednesday, Gasparino summed up the situation as it appeared to its source at the time:
SCOOP: Bankers contested for advisory orders for potential @Tesla privatization prepared their place for investors and compare @elonmusk with Bezos, Jobs, Dell. They give an option for $ TSLA will be a recapitalization if privatization plans fail – sources more now @FoxBusiness
– Charles Gasparino (@CGasparino) August 22, 2018
 What does "recapitalization option" mean? It could mean that there is a significant capital injection into equity, which could mean that some or all of Tesla's outstanding debt is converted into equity – or it could mean a major reorganization of the business, including a trip to the bankruptcy court if Tesla is somehow blocked from raising additional capital.
None of these things is likely to increase Tesla's share price, to say the least. Filing for bankruptcy could erase the current shareholders completely – but even the measures far below could lead to significant dilution, putting pressure on Tesla's still-high share price.
Of course, we must also remember that this story has already taken a few turns that would have seemed unlikely a month ago. It is quite possible that another change of action is in the works. We will probably find out soon.