“As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla,” Musk wrote.
US securities law draws a distinction between private and public companies. Public companies are companies whose shares are available for purchase by anyone on public markets like the New York Stock Exchange and the NASDAQ. Public companies often have thousands of shareholders—ranging from huge pension plans and mutual funds to ordinary retail investors.
In contrast, private companies have a smaller number of shareholders—generally fewer than 2,000—and are not available for purchase on public markets. Because their shares are not held by members of the general public, they are not required to publish quarterly financial results or other relevant information.
Musk has long regretted the need to take Tesla public in 2010, and now he appears to be poised to do something about it. In a Tuesday afternoon tweet, he portrayed the deal as basically done, pending shareholder approval:
Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote. https://t.co/bIH4Td5fED
— Elon Musk (@elonmusk) August 7, 2018
In his letter to employees, Musk also pointed to pressure from short sellers as a major downside to being a public company. Short sellers are speculators who effectively bet against the price of Tesla’s shares, potentially adding to the volatility of Tesla’s stock price and giving them a vested interest in seeing Tesla fail. Taking Tesla’s shares out of public markets would make it much more difficult for people to engage in short selling of Tesla’s stock.
Musk’s vision for a private Tesla
Musk argued that his other major company, SpaceX, offered a good model for Tesla to emulate. SpaceX has never offered its shares to the public. As a result, its stock is not subject to big swings in value, and the company is not required to provide quarterly financial results to the public. Musk argues that this has allowed SpaceX to be far more “operationally efficient.”
Musk said that he expects Tesla to eventually return to being a public company.
“Once Tesla enters a phase of slower, more-predictable growth, it will likely make sense to return to the public markets,” he wrote.
Often, going private means that a single new shareholder—or a small group of them—buys out most of the other shareholders, leading to a company with a small number of owners. But Musk says that’s not what he’s expecting for Tesla.
“I would like to structure this so that all shareholders have a choice,” Musk wrote. They’ll have an option to sell at $420 per share or to hold onto their shares and become shareholders of the new private company. Employees would also continue to receive shares. The switch would mean that shareholders could no longer freely sell their shares on the open market, but Musk said that employees—and potentially other shareholders—would still receive periodic opportunities to cash out.
“This has nothing to do with accumulating control for myself,” Musk wrote. “I own about 20 percent of the company now, and I don’t envision that being substantially different after any deal is completed.”
Musk has said he expects to continue being the CEO of Tesla after the deal goes through and that he doesn’t expect any single shareholder to wind up with a majority of Tesla shares—suggesting that he has either assembled a consortium of investors to participate in the buyout or that some of Tesla’s major shareholders—in addition to Musk—are planning to hold on to their shares.