“Elon Musk, after hate-tweeting journalists and short-sellers, shunning analysts and disparaging rescue workers, seems to have found a new No. 1 enemy: public markets,” says Stephen Gandel on Bloomberg. Last week he tweeted that he wanted to take Tesla private at $420 a share, and that he had already secured the funding to do so. He claimed private markets have become more hospitable to larger firms that are still growing strongly, while public markets force companies into short-term thinking. Musk’s tweet sent Tesla’s shares rocketing 11% to around $380, their all-time high.
“This is out there, even for Tesla,” according to a Barclays note. The group has 145 million shares, so a buyout at $420 a share would require $60bn to account for all the public shareholders. The process also implies spending another $10bn or so to cover the company’s debt. Musk has suggested that Saudi Arabia’s sovereign wealth fund, PIF, is keen to get on board, but “even with the Saudi fund taking a 3%-5% stake, that leaves a large funding gap. And credit markets may not be that receptive.”
Not a good buyout candidate
Scepticism over funding aside, there are “plenty of unanswered questions” here, says Charley Grant in The Wall Street Journal. This would be twice the size of the biggest buyout in history – 2007’s takeover of Texas’s biggest electricity utility, TXU – which ended in bankruptcy. And Tesla is hardly the sort of company private-equity investors like.
They prefer to fund big takeovers of mature companies with debt and use the steady cash flow to pay it down. Tesla, however, is a young company that “burns rather than generates cash and is already neck-deep in liabilities”. What’s more, if Musk hasn’t actually secured the funding, he could be accused of “trying to drive up Tesla’s stock to make [Tesla’s] many naysayers suffer”.
You can see why people might think so, says Antony Currie on Breakingviews. What Musk called “secured” funding ought to mean that he and PIF “have already signed an agreement locking in the money”. For Musk, however, it apparently implies “strongly expressed… support… subject to financial and other due diligence and their internal review process for obtaining approvals”. What’s more, it took him six days to provide this rationale for his tweet saying he had secured funding early last week. The way he has handled disclosures confirms “how ill-suited he is for his public role”.
Musk is certainly “terrible at being public”, agrees Gandel. And he is quite wrong to complain that public markets don’t suit Tesla. The shares have gained over 1,100%, or 36.7% annualised, over the past decade. And despite its chronic failure to make money and hit production targets, shareholders are still happy to pay a jaw-dropping 130 times 2019 earnings for the stock.
Weedkiller could stunt growth at Bayer
Pharmaceutical and life-sciences group Bayer “is trying to cure cancer”, says Lex in the Financial Times. Now “it might have to take responsibility for causing it too”. Last week a US judge ordered the group’s recent acquisition Monsanto to pay $289m in damages to a man who said ingredients used in a weedkiller had caused his cancer. The judge found that the firm had failed to warn of the risks. The decision sent Bayer’s shares down by 13%. But things could get worse. The outcome may pave the way for 5,000 other claims. If those win similar payouts, “Bayer would be left insolvent”.
Such high payouts seem “a long shot, however”, says Neil Unmack on Breakingviews. Some $250m of the damages were “punitive rather than purely compensatory”.
Meanwhile, Bayer is confident it can win the case on appeal. More importantly, however, the setback “makes the logic of buying Monsanto even more weedy than it already was”. Bayer acquired the group in June to combine its crop-protection business with Monsanto’s expertise in seeds, allowing it to cross-sell products to farmers. The risk is that farmers will now be less keen to buy both Monsanto’s and Bayer’s products, eroding the $200m of new yearly revenue streams the deal was supposed to generate.
It’s possible that “Bayer has made a terrible miscalculation in buying Monsanto”, says Chris Hughes on Bloomberg. What’s more, CEO Werner Baumann chose to pay for Monsanto entirely in cash, and so his shareholders didn’t have a say. While Monsanto’s former shareholders are “now completely off the hook, their Bayer counterparts look uncomfortably exposed”.
• “Floated at 290p in March 2013, now ‘minded’ to recommend an offer from Bain Capital at 280p,” says Alistair Osborne in The Times. “On the face of it,
the insurer Esure has proved as irritating a stockmarket investment as its ‘Calm down, dear’ advertisements.” But it’s not that bad. When it floated, Esure bought the half of the Go Compare price-comparison website it didn’t already own and then spun it off. Esure’s investors got a stake in a business today valued at £460m. Add £300m of dividends and it’ll have delivered over £700m of post-float value.
• Last week scientists warned that climate change could make parts of the globe uninhabitable. The “hot breath of freak weather” is also hurting holiday firm Tui, which saw weak customer demand in the third quarter as people – especially in Britain and France – stayed at home, says Lex in the Financial Times. This contributed to a 13% decline in profits to €193m during the period. The stock fell by 7.5%. CEO Fritz Joussen must be pleased with his investments in cruise ships, however. They now produce 23% of profits.
• There are many unanswered questions over Mike Ashley’s £90m takeover of House of Fraser, but the main one is why Sports Direct’s share price didn’t tumble, says Jim Armitage in the Evening Standard. Until this week’s announcement, “we thought Ashley would be cherry-picking a handful of stores from the administrators”. Now he is taking on 59 across the UK. It’s also unclear what debt Sports Direct is assuming, and how much it will have to invest to keep the stores going. “You can bet it will be numbered in the tens of millions of pounds, though.”