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Kass: For Whom The Bell Tolls ($TSLA)

Written by Doug Kass | Aug, 8, 2018

5-Reasons Why I Doubt Tesla Is Going Private

One of my most important media contacts was Barron’s Alan Abelson.

In time, Alan became a very close friend – I spoke to him nearly every Thursday afternoon for almost two decades. We went to New York Yankee games together and shared a lot professionally and personally.

Some years into our business relationship I sent him a couple of books of fiction that I thought he would enjoy. Very soon thereafter I received a call back from him saying that he doesn’t read fiction anymore because what happens on Wall Street is often much stranger than the best books of fiction.

I Still Bleed Barron’s Blue, and I still remember Alan’s comments about the weird goings on in Wall Street.

And, one of the most bizarre Wall Street events occurred yesterday with Elon Musk declaring his “intention” to take Tesla private (with “funding secured.”).

After more than one hour of a halt in the trading of Tesla’s (TSLAshares the company has come out with a release confirming Elon Musk’s interest in taking Tesla private at $420/share — a transaction valued at about $72 billion.

I have little doubt there will be NO transaction:

  • To begin with, Elon Musk has a unique sense of humor. The number 420, or 4:20 or 4/20 (pronounced four-twenty) is a code-term in cannabis culture that refers to the consumption of cannabis, especially smoking cannabis around the time 4:20 p.m. (or 16:20 in 24-hour notation) and smoking cannabis in celebration on the date April 20 (which is 4/20 in U.S. form).
  • The company’s fundamentals and balance sheet do not support a leveraged transaction. A LBO is not financeable in the current market and this is the least demanding market in history for financing. Tesla is losing money, has large capital spending requirements, is bleeding cash, has meaningful contingent product liability risks and already has $9 billion of net debt.
  • The only way the LBO could be done is if several large strategic buyers lost their collective minds and invested in the transaction. As best I can ascertain there are no such strategic buyers that exist to support this deal — though many have lost their minds on smaller transactions!
  • There was no mention of investment banking advisors or outside legal counsel in the Tesla statement. This makes me suspect of the proposed transaction. 
  • Musk recently purchased stock in the open market. I presume Musk has been thinking about a going private deal for some time, which raises potential legal (SEC) problems.

As I wrote in my previous post, Elon Musk has gone “off the reservation” after making a choreographed and random tweet yesterday.

Not only do I believe there will be no going private transaction but I suspect Musk has gone too far with his tweets and will likely pay a legal toll for it.


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Doug Kass

Doug Kass, since 2004 Doug Kass has served as President of Seabreeze Partners Management, Inc. He runs a hedge fund and individual managed accounts, co-authored “Citibank: The Ralph Nader Report” with Ralph Nader and the Center for the Study of Responsive Law in the 1970s and wrote "Doug Kass: A Life on the Street" two years ago (John Wiley). Since 2003 Mr. Kass served as a guest host on CNBC's "Squawk Box" and has guest hosted Bloomberg's "Market Surveillance" for the last five years. Along with Jim Cramer, Doug is the principal contributor to Real Money Pro.

2018/08/08
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