Tesla's board has formed a special committee to consider going private

Hollis Johnson/Business InsiderTesla CEO Elon Musk has expressed his desire to take the company private.
  • Tesla‘s board of directors has formed a special committee to examine CEO Elon Musk‘s preference to take the company private, according to a statement on Tesla’s website.
  • Three independent board members – Brad Buss, Robyn Denholm, and Linda Johnson Rice – will sit on the special committee.
  • While Musk has not yet presented the committee with a formal proposal to convert Tesla into a private company, he will need the committee’s approval before such a move can occur.

Tesla’s board of directors has formed a special committee to examine CEO Elon Musk’s preference to take the company private, according to a statement on Tesla’s website.

Three independent board members – Brad Buss, Robyn Denholm, and Linda Johnson Rice – will sit on the special committee. While Musk has not yet presented the committee with a formal proposal to convert Tesla into a private company, he will need the committee’s approval before such a move can occur.

The committee has secured the law firm Latham & Watkins LLP as its legal counsel and intends to use an independent financial advisor.

Last week, Musk expressed his desire to take Tesla private in a now-controversial tweet.

“Am considering taking Tesla private at $US420. Funding secured,” Musk said via Twitter before issuing a formal statement on Tesla’s website.

In that statement, Musk said taking the company private was “the best path forward.” He said the pressures of being a public company created distractions and promoted short-term thinking that may not produce the best decisions in the long term.

Some were confused in the hours and days following the tweet, since Musk did not initially disclose who might provide the funding he mentioned.

The Wall Street Journal reported on Wednesday that the US Securities and Exchange Commission had made an inquiry into Tesla about whether one of Musk’s tweets regarding the possibility of taking the company private was truthful. And on Thursday, Bloomberg reported that the agency was “intensifying” its inquiry.

On Monday, Musk said in a statement that he used the phrase “funding secured” because he believed there was “no question” Saudi Arabia’s Public Investment Fund would provide funding for a deal to convert Tesla into a private company after a July 31 meeting with the fund’s managing director. He made the announcement via Twitter, he said, because he wanted all Tesla investors to know about the possibility of Tesla going private at the same time.

Musk said he was in discussions with the Saudi sovereign wealth fund and other investors and planned to fund most of a potential take-private deal with equity rather than debt, since he does not want to increase Tesla’s debt load.

Musk also estimated that about two-thirds of the shares owned by Tesla shareholders would roll over into shares of a private Tesla, were a deal to go through. In that case, he would not have to raise the over $US70 billion that would be needed to buy out all current shareholders at $US420 a share.

“Reports that more than $US70B would be needed to take Tesla private dramatically overstate the actual capital raise needed,” he said.

Musk said all relevant parties would be able to review a proposal before a decision was made about going private. He said a proposal would not be presented, however, until discussions with potential investors were finished.

The Saudi sovereign wealth fund first met with Musk early last year about taking Tesla private, Musk said, adding that they’d met multiple times. After the fund purchased about 5% of Tesla’s shares, it requested another meeting with Musk, which Musk said took place July 31. Musk said that during this meeting the fund’s managing director “strongly expressed his support” to contribute funding to take Tesla private.

Musk notified Tesla’s board of directors of his desire to take Tesla private on August 2, he said.

Tesla’s board released a statement on Wednesday morning that was very brief and offered few details other than news that Musk had met with the board last week to bring up the possibility of going private.

Tesla has been public since 2010, but Musk has previously said he would like to take Tesla private.

“I wish we could be private with Tesla,” Musk said in an interview with Rolling Stone published in November. “It actually makes us less efficient to be a public company.”

Musk has also said on multiple occasions that Tesla would become profitable by the end of this year and would not need to raise additional funds, despite its increased cash-burn rate in recent quarters.

At the end of June, Tesla said it achieved its goal of making 5,000 Model 3s in one week. Musk previously said that the company would hit that number by the end of 2017 and that sustaining such a production rate was critical for Tesla to become profitable.

Read Tesla’s full comment below:

Tesla, Inc. (the “Company”) announced today that its Board of Directors has formed a special committee comprised of three independent directors to act on behalf of the Company in connection with Elon Musk’s previously announced consideration of a transaction to take the Company private (the “Going Private Transaction”). The special committee has not yet received a formal proposal from Mr. Musk regarding any Going Private Transaction nor has it reached any conclusion as to the advisability or feasibility of such a transaction.

The special committee is composed of Brad Buss, Robyn Denholm and Linda Johnson Rice. The special committee has retained Latham & Watkins LLP as its legal counsel and intends to retain an independent financial advisor to assist in its review of a formal proposal once received. The Company has separately retained Wilson Sonsini Goodrich & Rosati as its legal counsel in this matter.

The special committee has the full power and authority of the Board of Directors to take any and all actions on behalf of the Board of Directors as it deems necessary to evaluate and negotiate a potential Going Private Transaction and alternatives to any transaction proposed by Mr. Musk. The special committee’s grant of authority provides that no Going Private Transaction will be consummated without the approval of the special committee. The special committee expects to provide a further update concerning the process associated with Mr. Musk’s proposal as soon as practicable.

No assurances can be given regarding the likelihood, terms and details of any proposal or potential Going Private Transaction, that any proposal made by Mr. Musk regarding a potential Going Private Transaction will be accepted by the special committee, that definitive documentation relating to any such Going Private Transaction will be executed or that such a transaction will be completed.

Forward Looking Statements

Certain statements in this announcement, including statements regarding a potential Going Private Transaction, are “forward-looking statements” that are subject to risks, uncertainties and contingencies. These risks, uncertainties and contingencies include, but are not limited to, the impact of the announcement of the formation of the special committee and review of a potential Going Private Transaction on the Company’s business and its ability to implement any potential Going Private Transaction. Various important factors could cause actual results to differ materially, including the risks identified in our SEC filings.

This list of factors is not intended to be exhaustive. Such forward-looking statements only speak as of the date of this announcement, and the Company disclaims any obligation to update information contained in these forward-looking statements.

This is a developing story. Check back for updates.

Have a Tesla news tip? Contact this reporter at [email protected].

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