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What if the $ 420 dream of Elon Musk did not go up in smoke?

Last August, Elon Musk tweeted that he had received "funds" to take Tesla privately. That turned out to be incorrect, and he eventually had to settle charges fraud with the Securities and Exchange Commission.

Musk is still struggling with the SEC for the same settlement, and it is possible he will be tried for alleged violation of the court. Given the upcoming decision, it pays to ask: what if he? had Financing strung? What could Musk do to transform Tesla, which has been listed on the New York Stock Exchange since 2010, into a private company?

How could he have done it?

There are several ways in which Musk Tesla would have taken on its own. One of the most common ways would be to finance a small group of institutional investors to buy the company's shareholders. Shareholders usually want a premium on the price of each stock (such as $ 420!) And must also agree to the deal. Investors would in return receive ownership interest in the company, but the total number of owners would be below the thresholds of the Securities and Exchange Commission for public reporting.

At first, this seemed to be the way Musk wanted to go, but his subsequent tweets complicated matters, says Stephen Diamond, a law professor at Santa Clara University and an expert in securities law and corporate governance – especially the one where Musk hopes expressed that "* all * current investors stay with Tesla, even if we are private, "

"It would be a great challenge for him to group a subgroup of several thousand shareholders into a kind of entity" that the US Securities and Exchange Commission would hold below these thresholds.

Another way to take Tesla out of the public purse would be to conduct a leveraged buyout, said Ann Lipton, a professor of corporate law at Tulane University. Here, the goal is the same – buy out the shareholders, so that only a few are left – but the source of income is different. Instead of trading the ownership shares for financing, Tesla lends money from companies like banks to buy up the shareholders. Financial forms often call debt leverage because it sounds less dangerous; therefore "leveraged buyout" instead of "debt-bought".

The problem with that, says Lipton, is that Tesla already had one amount the debt – about $ 11 billion at the time of the "Funding Secured" – and not much freely available cash.

"The theory of a leverage buyout is that you take a cash-rich company and pay back the debt, but that's not Tesla," she says.

If Tesla were private today, it probably would not have been through a leverage buyout. More likely, the first way would have been a small group of investors. If that had happened, it would have cost tens of billions of dollars and, according to Diamond, would have been "one of the largest and most complex private equity games". Because Musk not indeed If funding from Saudi Arabia is due, he would probably have had to find it from existing or external institutional investors and then use it to buy the shareholders of a transaction they need to approve.

Many shareholders would inevitably be angry (as something were that day in August), either the amount Musk had offered or the way the deal was handled, says Gregory Shill, professor of law at the University of Iowa. This actually happens with many buyouts. Litigation over the deal price is particularly unavoidable, he says. But even if Musk "dotted his I's and crossed his cross," says Shill, there would probably be a lawsuit over how the process was handled.

To understand why, it helps to take a look at SolarCity's acquisition by Tesla at Musk was chairman of the solar energy company when he made the offer, and it was headed by his cousins. He agreed to the vote and 85 percent of shareholders agreed. However, some shareholders still complained that the trial was corrupt because of the close relationship between Musk and his cousins ​​and the fact that Tesla's board of directors was stacked with Musk supporters. The case is still ongoing.

Lipton says that in the SolarCity case, Musk did not even pretend to negotiate gun lengths, so it might be possible that a similar case would have been raised had Tesla become private. Even if Musk had successfully completed his efforts, he and Tesla would probably defend themselves in court today. (Instead, they are still resisting claims from shareholders for alleged securities fraud.)

What would have made Musk to take Tesla privately?

If Musk had taken Tesla privately in a more traditional way, there probably would not have been a SEC complaint. This means that Musk would continue to be the chairman, $ 20 million richer, and not appoint independent board members of Larry Ellison and Kathleen Wilson-Thompson to the company's board of directors.

If Tesla had become private, fewer people would have access to the company's financial data because the SEC would no longer need to publish those numbers. (However, Lipton points out that some of Tesla's debts are tied into bonds that require disclosure, so the company would have to pay that debt to really "go into the dark," she says.) The automaker would also do less Pressure from Wall Street analysts that view a company's stock price as a measure of performance. The company would also be exempted from filing a report every quarter, which Musk said was "putting enormous pressure on Tesla."

That does not mean Tesla, according to Diamond, would be free of exams.

"In the private sphere, he has some very hard co-owners who represent very demanding investors," says Diamond. Consolidation of ownership means that this smaller group of stakeholders also "has a significant impact on day-to-day business".

"If he thinks he'll find some dumb billionaires out there who give him a free hand, I think he's kidding himself," he says.

musk would Diamond probably has more control over the company's history.

"He could avoid public scrutiny by investors and then use his own voice to present the Tesla story to the public as he wishes," says Diamond. "The problem today is that he works with other investors and that requires him to keep them up to date. And he has to be honest. He does not have to tell them everything, but when he speaks, he can not mislead her. "

The story of Tesla is crucial to Musk and something he fought for. He has accused the media of writing stories that misrepresent what's going on in the business, and even go so far as to "shame" them during a teleconference. He constantly claims short sellers, people who make bets that a company will fail to spread lies about the company. "[S]hort – Sellers desperately push for a story that may lead to Tesla's destruction, "he once said New York Times, Musk has accused both journalists and sellers of "big oil".

Journalists would have less access to Tesla's financial data but would not stop reading Tesla. A private Tesla, however, means that the short sellers have no opportunity to place these bets against the company, says Shill.

Tesla short sellers had been around long before the go-private attempt, but over the last year and a half, the number has grown as the company struggled to ramp up the Model 3 production. They were linked to Twitter and even built a website to present their theories and research they claim to expose the fraudulent practices of Musk. Even if Musk had found a way to make Tesla private, this community of Internet nuisance would probably still be there.

With that in mind, Shill knows Musk might have expected more than anything else from the SEC. If the company were kept private, Musk would "stay in the public imagination, always on the front page of the Wall Street Journal, and be everywhere on Twitter, but he would not knock the SEC-type cops on his door, "he says.

Musk has mocked the US Securities and Exchange Commission several times since the two sides reached an agreement. She called her "Short Seller Enrichment Commission" and went straight ahead 60 minutes that he does not respect the agency. Musk continues to struggle with the SEC over the deal it agreed last year. So you can easily imagine that he has a distance from the agency.

"That was the real attraction," says Shill.

The Tesla never was

A private Tesla would be less exposed to the public, more under the control of Musk and would be relieved of the pressure of reporting on good quarterly results. However, this control would be directed against stronger, interested shareholders. Musk would probably still be his strange (and often belligerent) self on Twitter. The company would be involved in a lawsuit with its former shareholders, and individuals who believe that Tesla is a fraud would still work to prove it.

In the meantime, Tesla would still lead a young electric car business in the mass market that needs one amount just to survive – let alone grow. Even if Tesla had become private, it probably would not have remained private forever, says Diamond.

"The reason you go private is to focus management on solving production problems, reorganizing the business and then making it more palatable to a larger number of investors," he says. "You want a smooth running machine."

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