Report: Saudi Arabia May Be Planning A Major Bid For Tesla’s Leveraged Buyout

Report: Saudi Arabia May Be Planning A Major Bid For Tesla’s Leveraged Buyout

The official sovereign wealth fund of the Saudi Arabian government may be considering a major investment in Elon Musk’s electric car giant Tesla, and sources say it is “in talks” to do so after Musk let slip via Twitter that he is considering taking the company private in a $US60-billion-plus deal at $US420 a share.

According to a report by Bloomberg, Saudi Arabia’s Public Investment Fund (PIF) has already built up a 5 per cent stake in the company and is trying to expand that share dramatically. Bloomberg wrote that the investment would be part of plans for the country’s wealth to expand beyond the oil market, which has been shaken in recent months and may be under long-term threat from countries looking to shift to renewables:

The Public Investment Fund, which has built up a stake just shy of 5 per cent in Tesla in recent months, is exploring how it can be involved in the potential deal, said the people, who asked not to be identified talking about the matter. Discussions began before the controversial Aug. 7 tweet by Musk, who is Tesla’s co-founder and chief executive officer, saying he was weighing a plan to take the company private.

The PIF sees its investment in Tesla as a strategic way for the world’s biggest crude producer to hedge against oil, the people said. The Saudi fund hasn’t made any firm decisions on whether to increase its stake, or by how much, but talks are ongoing, they said. It wasn’t immediately clear how much the fund would invest in Tesla.

… The PIF and Tesla didn’t respond to requests for comment.

Just one day before, though, Reuters reported PIF managers had no interest in securing a larger share of Tesla. That report said the hesitance was in part due to needing guidance from rumoured Tesla buyout partner Softbank, which the PIF has invested $US45 billion into, and in part because the PIF had already bought into Tesla rival GM Cruise. So take the news from Bloomberg with a grain of salt.

Reuters wrote:

… A source who is familiar with PIF’s strategy said it was not currently getting involved in any funding process for Tesla’s take-private deal.

A second source close to the situation also said PIF was not taking part in any such plan at this stage. This source said that the Saudi fund would not make an investment of this kind without seeking guidance first from Softbank.

Reuters reported on Wednesday that SoftBank was not currently pursuing a deal for Tesla given its investment earlier this year in rival GM Cruise.

Musk said in his initial announcement—which some initially took as a joke because 420 is the so-called “weed number”—that funding has already been secured for the deal. That can’t be readily fact-checked due to the inherent secrecy in the bidding process, but it’s possible that Musk only secured part of the funding, one of his partners backed out, or he’s trying to juice the bidding process to get a better deal.

The Securities and Exchange Commission reportedly has launched an inquiry into Musk’s tweet, purportedly with the intent of determining whether it was misleading, false, and/or an attempt to manipulate stock prices. There’s also rampant speculation that Musk, who is not exactly known for his wise judgement on what to tweet or not, was bluffing and all of Tesla’s announcements since have been an attempt to weasel their way out of a bad situation that could get the company in trouble with regulators.

Yet Saudi Arabia has been looking to expand the PIF to swung by Silicon Valley, and the kingdom was likely behind a glowing propaganda magazine that hit newsstands across the U.S. in March.

Musk’s proposed leveraged buyout could be the largest in history, even discounting the CEO’s 20 per cent stake. In an email published to the Tesla website, Musk explained that Tesla was under “enormous pressure” to hit short-term earnings goals, suggesting that external investment could give the company breathing room and help safeguard it against rivals:

Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.

Musk also claimed the buyout was not a pretext for him to seize more direct control of the company, writing he did not envision his 20 per cent stake being “substantially different after any deal is completed.”

If Musk does take the company private, there are a limited number of investors capable of providing the necessary funding. Per Wired, those include investors in Saudi Arabia, China, and Japan, with China the likely front-runner due to its plans to require 10 per cent of all automobile sales next year be battery-powered vehicles.