Also Chris Collins and songwriting as a service.
Tesla Funding Watch 2018.
Yesterday we talked about a bunch of questions raised by Elon Musk’s announcement that he plans to take Tesla Inc. private at $420 a share, but right now one question is far more urgent than any of the others, and it is: Where’s the money? Musk tweeted “funding secured” for his bid, and Tesla’s board announced —rather more circumspectly—that its discussion with Musk “addressed the funding for this to occur.” But no one is saying who’s putting up the $60 billion or so that will be required to take Tesla private.
Reporters are naturally curious about this, and they have gone around asking all the obvious possibilities —banks, private equity firms, tech mega-caps, SoftBank—and come up empty . (I joked yesterday that “Surely the SoftBank Vision Fund would kick in $10 billion just for the entertainment value,” and in fact Musk did meet last year with Masayoshi Son of SoftBank Group Corp. and discussed taking Tesla private, but Son didn’t bite.) I guess it can’t hurt to throw this out there: If you are the source of Musk’s financing for his bid to take Tesla private, please shoot me an email and let me know.
But do you know who else is curious about Musk’s financing commitments? And who has more tools to find out than the average reporter? Yes that’s right it’s the Securities and Exchange Commission!
Yeah, look. I bet that all work at the SEC’s San Francisco office stopped yesterday as they conducted an office-wide arm-wrestling tournament to select the person who got to make that call. You work your whole life at the SEC just for the remote chance that one day you might get to be the one to call up Tesla, hold up a hand to quiet the hoots of your colleagues who are listening in, take a deep breath to suppress your own giggles, and say into the phone: “So… how’s that financing?” Of course the SEC is looking into this. I can’t think of a thing that the SEC would look into more. If Warren Buffett was giving insider tips about accounting fraud at the Fed to Lloyd Blankfein so that he could help Donald Trump and the pope insider trade against the Illuminati, the SEC team investigating that would be scheming to get transferred to the Elon Musk team. The Elon Musk team is already shopping for the commemorative flamethrowers they’ll get when they finish.
I don’t know. It would be utterly insane—like, federal prison insane !—for Musk to publicly announce that he had secured financing for an $80-plus billion buyout if he hadn’t secured the financing:
But the other possibility, that he has locked down tens of billions of dollars of committed financing for this proposed deal, and that neither he nor the board nor the financing sources have breathed a word about who they are, is also … not completely sane, you know? That is a lot of financing to keep so secret. It feels like the solution to the puzzle is going to end up being something weird and tiresome, like Musk will tweet that when he said “funding secured” he meant that he has drafted the white paper for the PrivateTeslaCoin initial coin offering, or bought a lot of scratch-off lottery tickets, or minted a platinum coin with “$1 trillion” stamped on it, or that the real financing is the friends we made along the way. I guess we’ll find out! But you know who will find out first? The SEC! I cannot tell you how envious I am.
You know who I do not envy? The investment bankers who cover Tesla:
Good lord. If you’re the coverage banker on Tesla, a lot of very senior people are calling you and asking you very basic questions—are we in this deal? what is this deal? are you talking to the decision-makers?—that, I suspect, you are very ill-equipped to answer. The correct answer to any question about this deal is to just sigh and shrug and say “I dunno it’s Elon Musk man”—that is the answer that I have tried to convey in my columns, certainly—but it is not, I suspect, an acceptable answer for Tesla coverage bankers. I cannot imagine what an acceptable answer would be. I guess if I were in their shoes I’d try something like “Our place in the deal is secured. Gotta go.” I mean, it works for Musk.
Elsewhere in Tesla, Bloomberg’s Molly Smith notes that Musk’s tweet pushed Tesla’s stock price above the conversion price of its convertible bonds, which could save it some cash if they end up converting into stock instead of being paid back in cash at maturity. As a converts guy I find this theory interesting but not ultimately convincing. For one thing, some of Tesla’s converts have to be net-share settled, meaning that even if they “convert” they pay off par in cash and the excess conversion value in stock or more cash. (The converts due in 2019 can be fully share settled at Tesla’s option, though, so Tesla could save cash if they convert.) More importantly, though, convertible bonds do not generally convert early, and the earliest maturity is in March 2019. If there is still no deal seven months from now, Musk’s tweets from this week are not going to have a continuing positive effect on the stock price.
Here is some speculation about how Tesla might “go private” while still offering public shareholders a chance to keep their shares, as Musk has said he wants to do:
That’s a fairly spivvy approach—“Going-dark transactions traditionally have been the province of tiny companies”—but it’s not like there’s a straightforward above-board way to go private while keeping all your public shareholders. And here are Alexandra Scaggs and Jamie Powell on the change-of-control puts in Tesla’s bonds, which raise interesting questions: If Tesla really does manage to go private while keeping many of its same shareholders, that might not trigger the puts.
And here, via Kipp Rogers, here is the section of the Nasdaq rulebook that requires companies to notify the exchange at least 10 minutes before publicly disclosing certain material information, including, of course, mergers. I am not sure that a vague proposal by the CEO to take a company private counts, but in any case, I assume the next edition of this rule will have a subsection that says “unless you are Elon Musk in which case just tweet what you want, we can’t stop you.”
Oh Chris Collins.
If it weren’t for the fact that he is a prominent pro-Trump congressman, the civil and criminal insider trading cases brought by the SEC and federal prosecutors yesterday against Representative Chris Collins, his son, and his son’s girlfriend’s father, would be pretty run-of-the-mill. Collins was a director of a publicly traded Australian (but also U. S.-traded) biotech company called Innate Immunotherapeutics Ltd., and the company’s CEO emailed him bad news about the results of clinical trials. Collins didn’t trade himself after getting this bad news, and lost money when it was announced and the stock went down. But he did allegedly tip his son, who was also a shareholder, and who sold stock after the alleged tip but before the results of the trials were announced. The son also allegedly tipped a bunch of other people laid out on a handy flow chart, including his girlfriend and various of her family members.
But Collins is a prominent pro-Trump congressman, and one who pitched a bunch of his congressional colleagues on Innate, so every aspect of this is just a little dumber and more brazen than you’d expect in an ordinary insider trading case. For instance, from the criminal case:
Ehh. Do we need a Ninth Law of Insider Trading, “if you’re already under a federal ethics investigation for promoting a stock, don’t insider trade that stock”? It seems pretty niche. On the other hand, we are not even two years into the Trump Administration, and it does kind of seem like it could come up again. Really you can sort of think of the Wilbur Ross situation as a variant on this rule. So, sure, yes:
There you go. Especially not at a congressional picnic! As always, the Laws of Insider Trading are not legal advice.
Here’s the point in the SEC complaint —well before the alleged insider trading—where I had to stop reading:
Honestly I want to put them all in jail just for those texts. Never mind the insider-trading part, just the “greater than 50% chance of going up” 1,500 percent, the “almost guarantees it,” it’s all so gross and scammy. This is how people talk in boiler rooms and my vague imagination of the 1920s; it is not what you want to hear from public-company directors, or their sons’ girlfriends.
Also Chris Collins and songwriting as a service.