Oooh, That Musk(y) Smell!
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2018-08-08 08:38 by Karl Denninger
in Company Specific , 211 references Ignore this thread
Oooh, That Musk(y) Smell!
[Comments enabled]

If you don't live under a freeway overpass you probably know that Musk yesterday, during the time the market was open, claimed an intent (sort of) to take the company private and claimed he had the "funding secured."

Now let's look at the math.  At $420, the claimed "price" he said he had set up, this is a roughly $80 billion transaction.  To do it he would have to get enough to reach the 50% control threshold, minimum.  Musk owns about 20% of the company, so that means he would need to fund roughly $20-25 billion to buy up 30% more shares.  But, the company is registered in Delaware (as are most public firms) so there's a potential fly in the ointment there in terms of corporate law; he might need to actually acquire a majority of the shares that are not closely held, which puts another $~10 billion on that (in other words he needs more than 50% representation ignoring his 20%.)  The reason is that Delaware has some "anti screwing" laws which make it easier to challenge a transaction like this if the insiders have a material piece of the shares voting for the go-private action, which is the case here.

Then there's the fact that the board has to vote for this; Musk cannot do it on his own.  He could of course try to use that majority to stack or eject the board and then do it that way, but again now you're inviting more litigation.

Finally, there's a further problem with this sort of "deal" -- it does exactly nothing to improve the firm's financial position.  In fact it makes it much worse unless "someone" wants to simply buy the company, as if this turns out being some sort of complex financial deal then the debt winds up out in the market and that debt has to be serviced on top of what's already there.

It's important to note that not one penny goes into Tesla's bank account through this, since the buying of the shares comes from the existing shareholders and not Treasury shares the company holds.

So was this a stunt or is it real?  Good question.  But this time, unlike the Mr. Pedo comment that Musk made about the cave diver that helped rescue the boys when they spurned his advances, he did materially move the market, his statement was one of fact, not opinion, and it was most-certainly material.

So Elon -- where's the ****ing money eh?  Either he has an actual commitment for the cash -- and we're talking about a hell of a lot of it, and not foreign cash either as there's no ****ing way either the Saudis or Chinese, or for that matter any other foreign nation's money is going to get approval to buy the company -- or he's in deep **** as that's a quite clear violation of long-standing law.  Further, determining intent ought to be easy too, never mind malice as the gist of the action, given how much Musk is known to "like" short-sellers.

If Musk doesn't actually have at least a binding letter of intent in-hand -- not in "discussion" -- then he needs to do 420.

Years, in prison, that is.

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Quik49
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Off 20 bucks from high....those people with holes are not going to take that lightly....

Show me the money musk...

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Tickerguy
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I'll lay odds he doesn't have it.

There are very, very few people with that much in CASH laying around who could do something like this "quietly" (e.g. not with syndication, which is NEVER quiet or private) -- Buffett is close to the only one in the US, and I can't imagine he'd be interested in it.

Any sort of syndicated deal (e.g. through some set of banks), and this would be a REALLY big one, isn't going to be quiet at all because they'd all be calling people and talking to them, and there's utterly no way to prevent leaks of that into the public.

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Winding it down.

Thorvold
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I'd be surprised if Musk actually has secured funds for this fiasco and will be 10x as surprised if he's even indicted. He can hire Corzine's lawyers.
Whossane
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Are you saying that a sale to a foreign entity would have to be approved by CFIUS?

Idiom
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Anything to stop Apple or Google buying them out?
Mikebrandt
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420 cuz he's high
Tickerguy
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@Whossane -- Yep, and there's no ****ing way it would be.

@Idiom -- That doesn't take the company private. In fact it gives Musk a boss AND leaves the company as a public firm, which he'd NEVER go for. Remember, if a public company buys another company the target is not private; it's a wholly-owned sub of the other public company and becomes part of that other firm's reporting structure, both operationally and financially.

To actually take the company private you need PRIVATE money that buys enough to control the shareholder vote (including insiders), and you WANT enough to control the vote WITHOUT the insiders, because otherwise Delaware law makes challenges materially easier, and litigation locks you up until it's settled or decided, which is very, very bad for a firm that needs capital market access in any form (would YOU buy bonds in a firm that might have its deal blow up?)

If a deal like this is syndicated then there's NO ****ING WAY to keep it quiet, since you can't bind people to non-disclosures until they have some clue what it is (otherwise they'd never sign); the only way to put that sort of money together on the "down low" is to do it with an individual, and there are damn few people on the ****ing planet that have that sort of cash available to them. And remember - it has to be CASH, not their options or privately held stock, since you're proposing to buy the existing shareholders out and you have to pay them with real money.

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Squeak
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There is no way Buffett touches this with a 100' pole. People may hate him, but the dude is a very ruthless and pragmatic investor, and this deal stinks like holy hell.

Tesla has no durable competitive advantage. No "moat". Crappy financials and balance sheet.

The ONLY thing that might be a sprout of a good idea from TSLA for long-term advantage is their autonomous driving tech, but even that right now is rainbow farts (and Warren hates tech he doesn't understand).

Plus, how the **** is Elon going to keep all the retail customers as owners like he promised (he has to have them to maintain is fan club and ego) and not run into SEC regulations around reporting (which is effectively what he is trying to run away from).

I am generally an optimistic person, but this feels stillborn.
Whossane
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It's one thing to contemplate the reasons why taking Tesla private would be beneficial but to actually set a price...WTF

Could Apple purchase via Braeburn Capital?
Tickerguy
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BTW there's quite a premium being asked for $200 SEPT PUTs. Over a buck for an option that requires nearly a FIFTY PERCENT collapse in price to be worth anything?

That of course implies that more than a few people think the price is going to collapse in the next month and change. Uh huh, sure he has the funding locked up.....

smiley

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Winding it down.

Whossane
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Braeburn wouldn't work since they mainly manage money held by Apple's foreign subsidiaries. The transaction would still be subject to CFIUS or they would have to pay taxes on the cash held overseas.
Quik49
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So where the hell are the regulators asking the same questions we are?

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Long Vaseline....

Spanktron9
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KD-

How long before an 8k shows up on EDGAR? This would be required IMHO.

From Investopedia:
Quote:
The SEC requires disclosure for numerous changes relating to a registrant's business and operations. This includes changes to a material definitive agreement or the bankruptcy of an entity. Financial information disclosure requirements include the completion of an acquisition, changes in the financial condition of an entity, disposal activities, and material impairments. The SEC mandates filing an 8-K for delisting of stock, failure to meet listing standards, unregistered sales of securities, and material modifications to shareholder rights.

An 8-K is required when a business changes accounting firms used for certification. Changes in corporate governance such as changes in control of the registrant, amendments to the articles of incorporation or bylaws, changes in the fiscal year and amendments to the registrant's code of ethics are also required to be disclosed. It also requires a report upon the election, appointment or departure of a director or certain officer. The use of Form 8-K is required to report changes related to asset-backed securities. Regulation FD requirements are also required.

Form 8-K reports may be issued based on other events up to the company's discretion that the registrant considers to be of importance to security holders.

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"Winter is coming." -Motto of House Stark
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Tickerguy
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Yep -- or jail.

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Winding it down.
Jack_crabb
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IMHO Musk makes the snake oil salesmen from the Old West look respectable.

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Molon Labe
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Spanktron9
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Quote:
So where the hell are the regulators asking the same questions we are?


Meanwhile at the SEC...


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"Winter is coming." -Motto of House Stark
"Don't coast through life. Grab it by the hair and **** it half to death." - Jotapay
"Strong people are harder to kill than weak people, and more useful in general" - Mark Rippetoe
"Its like Calvinball."-MarvinMartian
Acebarefoot
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While I don't "expect" the SEC to do anything, I also wouldn't be surprised either. I read an article where they quoted someone from the SEC on Marketwatch and there didn't seem to be a lot of interest in E.M.'s antics at this time.

All I know is if any of us had disclosed pertinent information that should have been shared differently, we would be bunking with Bubba and sleeping with one eye open all night.
Lenguado
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Quote:
-- or he's in deep **** as that's a quite clear violation of long-standing law.

What is this "LAW" that you talk about???

I've heard it mentioned in history books, but can't find much reference to it in contemporary writings . . . . .

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I just realized... they aren't saying, "Keynesian Economics"
they're saying "Kenyansian Economics". Grass Huts for everyone!
smiley
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Lunatic_fringe
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I don't necessarily blame Musk for taking advantage of government stupidity (particularly California) when it comes to mining subsidies but OMFG would I love to see this clown in jail.
Quik49
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will the next tweet be

J/K

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Long Vaseline....

Jack_crabb
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**** The King of the Government Tit.

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Molon Labe
Where is Henry Bowman when you need him?
How many are willing to pledge this? We mutually pledge to each other our Lives, our Fortunes, and our Sacred Honor
Whitehat
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perhaps Al Gore and his Globull Warming syndicate will issue a letter of intent to save Musk from himself.

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There are two ways to be rich: One is by acquiring much, and the other is by desiring little.
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Marquiri
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Per CNBS, SEC has reportedly made inquiries to Tesla over Elon Musk's tweet about possibly taking company private...
Ckaminski
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Didn't some Congressman from NY just get jacked over insider trading?

https://www.nytimes.com/2018/08/08/nyreg....


Ah, he's a Trump supported, that's why.
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