Saudi Arabia may take Tesla private, expert says

Tesla CEO Elon Musk said
he wants to take the company private.
Aaron Bernstein / Reuters

• Tesla CEO
  Elon
  Musk shocked observers on Tuesday when he announced his
  desire to take Tesla private, but nearly two days later, it’s
  unclear where the funding will come from.
• Banks or investment firms would likely be put off by an
  inability to fund a deal through debt, according to James
  Rosener, a partner at the law firm Pepper Hamilton.
• A nation’s sovereign wealth fund is more likely,
  according to Rosener, who listed Saudi Arabia as a possible
  candidate.

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Tesla
CEO Elon Musk shocked observers on Tuesday when he announced his
desire to
take the company private.

Musk said he had the funding for such a deal secured and
merely needed the proposal to pass a shareholder vote before it
could go through. (He indicated via Twitter that he had
investor support.)

But nearly two days later, it’s unclear where that funding will
come from. Tesla has yet to submit any regulatory filings that
provide more detail into Musk’s proposal, and, according to

The New York Times, some top executives at major Wall Street
Banks, like JPMorgan Chase and Citigroup, were not familiar with
Musk’s intention to convert Tesla into a private company before
he tweeted about it.

That raises the question: Where’s the money coming from?

Musk said he isn’t selling his 20% stake in the company and will
allow current Tesla investors to keep their investments if a deal
goes through, which means whoever provides funding for the deal
won’t have to account for all of the over $70 billion valuation
that would result from Musk’s proposed $420-per-share buyout
price.

Still, dedicating tens of billions of dollars toward a single
investment would be unusual for any single bank or investment
firm, James Rosener, a partner at the law firm Pepper Hamilton
who specializes in private equity and corporate financing, told
Business Insider.

That leaves two options: a group of firms or a nation’s sovereign
wealth fund.

Funding probably won’t come from Wall Street or Silicon Valley

Rosener said the latter is more likely, due in part to the fact
that a deal would be difficult to finance through debt. Tesla,
which has a history of burning cash quickly, wouldn’t inspire
enough confidence in potential creditors that it could handle the
interest payments a large amount of new debt would require.

A sovereign wealth fund could have the financial resources to buy
equity with cash, Rosener said. He suggested Saudi Arabia, which
was recently reported to have
purchased a 3%-5% stake in Tesla, could be a possible
candidate.

“Could it be [Saudia Arabia’s Crown Prince, Mohammad bin Salman] putting tens of billions of dollars in? It’s certainly
manageable,” Rosener said.

Another obvious candidate, China, is much less likely due to the
country’s reluctance toward inbound investment, according to
Rosener.

Whether or not a deal goes through, Musk’s approach to
potentially taking Tesla private has been unconventional, like
much else he does.

“It’s certainly kind of a
cavalier approach to a complex transaction. We’ll see if it works
out,” Rosener said.

Have a Tesla news
tip? Contact this reporter at
mmatousek@businessinsider.com.

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