Elon Musk’s mystery Tesla buyout funder is Saudi Arabia

Saudi Arabia's sovereign wealth fund is the mystery funder that has offered to finance a deal to take Tesla private, Elon Musk wrote in a Monday morning blog post. The post lays to rest a mystery that has bedeviled Wall Street and the news media since Musk tweeted last Tuesday that he had "funding secured" for a buyout.

"Going back almost two years, the Saudi Arabian sovereign wealth fund has approached me multiple times about taking Tesla private," Musk wrote in his Monday post. "They first met with me at the beginning of 2017 to express this interest because of the important need to diversify away from oil."

Further Reading There’s a big problem with Elon Musk’s plan to take Tesla private In late July, the Saudis purchased almost five percent of Tesla's stock (acquiring more than five percent would have triggered public disclosure requirements). They then met with Musk on July 31 and reiterated their interest in funding a buyout.

"I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed," Musk said. He then met with Tesla's board and told them he was interested in taking Tesla private.

The next step, Musk said, was to approach Tesla's largest shareholders to see if they would be interested in continuing to hold shares in the new, private incarnation of Tesla. But he thought that all shareholders deserved to know about the proposal at the same time—hence his Tuesday tweet announcing his plan to go private.

Discussions to continue in the coming weeks

Still, Musk isn't ready to sign on the dotted line with the Saudis yet. "I am having discussions with a number of other investors, which is something that I always planned to do since I would like for Tesla to continue to have a broad investor base," Musk wrote.

Musk also noted that this will not be a leveraged buyout, where the acquisition is largely funded by borrowing money that would have to be paid off by Tesla later. Instead, the Saudis (or whoever ultimately funds the deal) will buy shares from existing shareholders who want to cash out—these funders would then become some of Tesla's biggest shareholders.

A total buyout of Tesla would cost more than $70 billion. But Musk says he's hoping that many of Tesla's major shareholders will choose to remain as shareholders in the new, private company. That would reduce the amount of cash required, since funding would only be needed to buy out shareholders who wanted to cash out.

Further Reading Tesla nearly triples Model 3 production from the previous quarter "My best estimate right now is that approximately two-thirds of shares owned by all current investors would roll over into a private Tesla," Musk wrote, implying that a buyout might require between $20 billion and $30 billion in cash.

There are still several steps ahead before any take-private deal can close. Musk is holding talks both with other potential funders and with Tesla's existing large shareholders. Once those discussions are complete, Musk will bring a proposal to Tesla's board. If the board approves the deal, then it would go to a vote of shareholders. If shareholders also approve, then each shareholder would have to decide whether to take $420 per share in cash—or to accept shares in the new, private Tesla instead.

One question Musk's blog post doesn't address is whether smaller shareholders would have an opportunity to hold onto their shares—and if so, how it would pass muster under US securities laws. The Securities and Exchange Commission generally doesn't allow privately-held companies to have more than 2,000 shareholders, and experts are skeptical that Musk can find a way to legally accept investments from thousands of small investors in the new private company.

Musk could have avoided a lot of confusion by being more forthcoming in his initial tweet last Tuesday. If the tweet had said "Saudi Arabia's sovereign wealth fund has expressed interest in financing the deal but I'm exploring other options" instead of "funding secured," it would have prevented almost a week of rampant speculation—and possibly some class-action lawsuits.