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Elon Musk's Tesla Go-Private Tweets: Are They Legal And Is The Deal Even Plausible?

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Elon Musk's Tesla Go-Private Tweets: Are They Legal And Is The Deal Even Plausible?
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Tesla Inc (NASDAQ: TSLA) shares were halted with news pending Tuesday at 2:08 p.m. after CEO Elon Musk tweeted he was considering taking the company private. The tweets came not long after a report that Saudi Arabia's sovereign wealth fund has built a $2 billion stake in Tesla.

Tesla representatives confirmed the unexpected tweets were, in fact, posted by Musk and were not the result of a hack. The company didn't confirm or deny any particular strategy, though.

The stock was halted at $366.94 per share.

Is The Communication Legal?

The medium is the message, and when words make money, the medium is heavily scrutinized. As such, the financial markets operate under strict policies for disclosure processes.

According to a correspondent with the Financial Times, the Securities and Exchange Commission initially declined to comment on whether Musk violated any disclosure rules by issuing the market-moving announcement in an informal tweet.

But former SEC Chairman Harvey Pitt told CNBC he saw problems with Musk's tweets, noting that the mention of a go-private price is “highly unprecedented … and raises significant questions about what his intent was.” If Musk can't prove the allegedly secured funding at $420 per share, he may be accused of market manipulation or market fraud.

As of Wednesday afternoon, the SEC had begun making inquiries into Musk's informal, market-moving statement and examining its veracity, according to the Wall Street Journal. The regulator allegedly inquired why the disclosure was made on Twitter Inc (NYSE: TWTR).

Loup Ventures managing partner Gene Munster said the Reed Hastings Rule eliminates legal risk, though. Through the law, the SEC essentially condoned social media announcements.

“The Securities and Exchange Commission issued a report that makes clear that companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will be used to disseminate such information,” the commission wrote in a 2013 press release.

Is The Deal Plausible?

Munster predicted a one-in-three chance that Musk will actually take Tesla private.

“The 16% premium to current share price may not be high enough to incentivize existing shareholders to support the sale,” Munster wrote in a note.

However, he concedes Musk has good reason to take Tesla off the public markets, and he’s established precedent through SpaceX and The Boring Company.

“His mission for Tesla (to accelerate the globe’s adoption of sustainable energy) is both grand and long-term, making it difficult to accommodate investors quarterly expectations,” he wrote. “He originally brought Tesla public in 2010, given he could no longer personally finance its growth, and has continually expressed his frustration with the company being public.”

Musk tweeted at 3:36 p.m. that, "Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote" and he also penned a blog post explaining his actions.

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Posted-In: Elon Musk Gene Munster Harvey Pitt Loup VenturesAnalyst Color News Legal Top Stories Best of Benzinga

 

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