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COMMENTARY

David Robinson: Public or private, Tesla's commitment to Buffalo will remain

Elon Musk apparently has had enough of the constant questions and the scrutiny from Wall Street, especially from investors who are betting that he will fail.

The Tesla Inc. CEO wants to take the electric vehicle-maker private in a deal that would be worth nearly $72 billion – one of the biggest going-private transactions ever.

If he succeeds – and Wall Street analysts said that was far from certain – it likely would mean an even tighter veil of secrecy over Tesla's solar panel factory in South Buffalo, since the company no longer would have to make the quarterly financial reports that Musk views as far-too-shortsighted.

Those reports, however, have been the main source of information about Tesla's shrinking solar energy business and the RiverBend factory that cost taxpayers $750 million to build. Tesla's solar business has deployed 160 megawatts of solar panels during the first half of this year. At that pace, Tesla's installations are at a pace that is only about a third of the plant's annual capacity.

But taking the company private wouldn't affect the company's promise to bring 1,460 jobs to Buffalo and it wouldn't change the $41.2 million annual penalty the company could face if it doesn't live up to its promises. Tesla still would have to file its mandated reports each year with state officials detailing the company's employment and its total investment in New York.

Musk's bombshell proposal shook Wall Street on a wild Tuesday afternoon filled with tweets about a potential deal and a trading halt before the company finally confirmed that the idea was being considered about a half hour before the stock market closed.

"I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we're all trying to achieve," Musk wrote in an email to employees.

'Out there, even for Tesla'

As the dust settled on Wednesday, analysts said they had plenty of unanswered questions about the proposal.

The biggest one is how Musk plans to finance the deal and just how much financing he'd have to line up to make it happen.

"Elon Musk argues that Tesla could do better without the distraction and short-termism of the public market," wrote Morgan Stanley analyst Adam Jonas in a report. "We get that. What's hard to get is if the capital markets can support a leveraged buyout and if Tesla can support far greater financial leverage."

Musk's tweets indicated that he had financing lined up, but his email didn't provide any details. With a $70 billion price tag, analysts said it could be a heavy financial lift.

"This is out there, even for Tesla," wrote analysts at Barclays, who estimated that the buyout could saddle Tesla with $2.7 billion in annual interest payments. That's a lot for a company that burned through more than $700 million in cash during the second quarter and has never turned an annual profit.

It's possible that Tesla won't have to borrow the full $70 billion. Musk said he wants to structure any deal so current investors can keep their equity in the company if they choose. Musk said he plans to keep his 20 percent stake, and every investor who hangs on to his or her shares would reduce the amount that Tesla would need to borrow to go private.

'Enormous opportunity'

While Musk has been frustrated recently with the investment world, Wall Street has allowed Tesla to raise billions of dollars to fund its growth. Going private would prevent Tesla from selling more stock if it needs to raise money in the future, although Musk has said he believes the company has sufficient capital for the foreseeable future.

Tesla's board on Wednesday said the company's directors learned about Musk's plan last week and are talking about the financing that would be needed and whether being private is in the company's best interests over the long run.

“Last week, Elon opened a discussion with the board about taking the company private,” six directors on Tesla’s nine-member board said in a statement. “The board has met several times over the last week and is taking the appropriate next steps to evaluate this.”

Musk sounded confident that Tesla ultimately will go private.

"Basically, I'm trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible," Musk wrote. "If the process ends the way I expect it will, a private Tesla would ultimately be an enormous opportunity for all of us."

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