JPMorgan wins prized role in Tesla privatization

Update, 2:02 p.m.: Tesla shares are trading at a record high, up 2.9 percent to $316.59, but Elon Musk, the company’s billionaire founder, is still trying to reassure investors about his business after his…

JPMorgan wins prized role in Tesla privatization

Update, 2:02 p.m.: Tesla shares are trading at a record high, up 2.9 percent to $316.59, but Elon Musk, the company’s billionaire founder, is still trying to reassure investors about his business after his $420 tweet last week left the company looking shaky.

The day after his tweet, Mr. Musk said he was “considering taking Tesla private at $420. Funding secured.”

“Funding secured” is part of a complex hedge-fund demand-and-then-extortion process used to squeeze junior investment-banking employees. If Tesla managed to work out a deal for $420 a share — well above the $419 per share the company has been asking for — Mr. Musk might have merely secured the support of a major investor, including Microsoft founder Bill Gates or Saudi Arabia’s sovereign wealth fund. If they weren’t on board, and more sophisticated investors refused to commit, the deal wouldn’t have stood a chance.

But as long as Tesla’s already stretched share price, at $257 at the close Wednesday, didn’t sink any lower, Mr. Musk’s quip might have stood a chance at all, since the “Funding secured” wouldn’t have been enough to convince Tesla’s public shareholders.

About $50 million of the $162 million goes to JPMorgan, the bank Mr. Musk had done a deal with last October, when his other stock buyout push came to a head.

For a while, JPMorgan said it was helping Mr. Musk with an initial offering on an $82 billion class of securities designed to isolate shareholder votes. That float would have been worth nearly 10 percent of the company, worth a mind-boggling $620 billion, according to the New York Times. But the initial offering never happened.

Instead, Mr. Musk went back to his Russian solar-panel company, SolarCity, and arranged an all-stock buyout at $200 per share. Later, he doubled that price to $300 per share, but had to slash the proposed transaction by about two-thirds — to $419 per share — because there was no support for it among the company’s public shareholders.

Mr. Musk was still peddling the convertible debt in April when he announced his plan to privatize Tesla.

JPMorgan’s winning bid for Tesla puts the bank just shy of the $6 billion threshold set by New York State Attorney General Eric Schneiderman to bar any banks from financing a single deal worth more than $6 billion, according to three people familiar with the matter.

A spokesman for Mr. Schneiderman’s office declined to comment.

Mr. Musk has not yet paid a penalty to resolve charges that he misled the market and the public about SolarCity. Under New York’s securities law, he may not do so until after the Department of Justice’s investigation into the SolarCity deal is over.

In a statement Wednesday, a Tesla spokesman defended the company’s hedge-fund-initiated offers.

“The convertible notes offer investors an important diversification, which is why the Tesla Board unanimously approved them with a high priority on growing the company and returning to profitability and cash flow. When coupled with a $1.6 billion stock buyback, the convertible notes offer a durable capital structure to support Tesla’s future growth,” he said.

Tesla’s choice to enter into exclusive negotiations with JPMorgan was seen as an attempt to gain more control over the process, which was widely believed to be a “buyout lite” that would have demanded the agreement of private-equity investors. For now, though, Mr. Musk and the bankers aren’t making it any easier on themselves.

Tesla said in its SEC filing that JPMorgan and Blackstone Group helped with three calls with the billionaire’s inner circle on the weekend of Jan. 27. The company said that Mr. Musk specifically requested the banks and Mr. Musk asked them not to disclose how much he was asking for a price. But the two sides “did not pay any attention to the word requested or any obligation to use it,” the filing said.

When a Goldman Sachs-run call with Mr. Musk was unable to land an agreement, the company turned to Morgan Stanley, whose bankers “recently attempted to raise financing” with two investors that it hasn’t previously said it’s seeking, the filing said.

If that effort fell short, Mr. Musk opted to approach one more bank, Goldman Sachs�

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