Tesla’s board of directors may tell CEO Elon Musk to recuse himself as it explores the possibility of taking the company private, CNBC reports, citing people familiar with the matter.
According to the publication, the board plans to meet with financial advisors to determine how it will explore the idea of converting Tesla into a private company and has told Musk that he must consult a separate, personal set of advisors.
The board will probably form a smaller, special committee comprised of independent directors to analyze buyout proposals, CNBC reports.
But Musk has not yet given the board detailed information about how a deal may be funded, Reuters reports.
According to CNBC, Musk spoke with Saudi Arabia’s Public Investment Fund about backing Tesla’s transition to becoming a private company, citing one source close to the matter.
The Financial Times reported on Tuesday that Saudi Arabia’s sovereign wealth fund had acquired a $2 billion stake in the company. The fund owns between 3% and 5% of Tesla’s total stock, meaning the stake is likely worth $1.7 billion to $2.9 billion.
Tesla and Saudi Arabia’s sovereign wealth fund did not immediately respond to Business Insider’s requests for comment.
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Musk shocked observers on Tuesday when he announced his desire to take Tesla private, saying 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 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 on Wednesday The Wall Street Journal reported that the Securities and Exchange Commission made an inquiry into Tesla about whether one of Musk’s tweets regarding the possibility of taking the company private was truthful.
According to The Journal, the SEC is also looking into why Musk’s first statement about the potential of taking Tesla private was made on Twitter instead of in a regulatory filing. The agency also asked the company whether it believes Musk’s tweet follows SEC rules about protecting investors, the report said.
Bloomberg reported on Thursday that the SEC was “intensifying” its inquiry into Tesla. According to the publication, the agency had already been gathering information about statements Tesla has made regarding sales and manufacturing targets.
An inquiry from the SEC does not necessarily mean an investigation will follow.
Some experts have raised an eyebrow over Musk’s statements.
James Rosener, a partner at the law firm Pepper Hamilton, told Business Insider that Twitter was not the right medium for a securities disclosure since the platform’s 280-character limit prevented Musk from disclosing enough information relevant to investors — including the structure of the deal, its tax impact, and the amount of debt it would require — to ensure he’s not misleading them.
According to Rosener, Musk’s tweet likely ran afoul of the SEC’s anti-fraud rules.
“There’s definitely material omissions,” Rosener said. “Clearly, it was not what any lawyer with any experience in this kind of stuff would advise to put out.”
David Whiston, an equity strategist at Morningstar who covers the US auto industry, said he was confused by Musk’s tweets, which he said indicated Musk had both the funding and the shareholder votes necessary to take the company private.
“I’m still trying to understand why he even went public like this,” Whiston said, “because I don’t see a point in going public to say you are considering going private unless you’re trying to get, perhaps, the price higher than $420 a share, or you’re just really eager to hurt the short-sellers. Otherwise, why wouldn’t you just wait until you’re definitely doing a deal to say something?”
Tesla’s board released a statement on Wednesday morning, but it was very brief and offered few details besides that Musk met with the board last week to bring up the possibility of going private.
Tesla has been public since 2010, but Musk has said in the past that 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 will become profitable by the end of this year and won’t 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 is critical for Tesla to become profitable.
Read CNBC’s full story here.
This is a developing story. Check back for updates.
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