Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, you know
what story has made this summer really fun? I do. Actually, it has to be Tesla, right, Yeah, So the last few weeks have just been this incredible saga of Tesla, starting with early August when it's CEO Elon Musk, said he was going to take the firm private at a price of four a share, and then he said in the same tweet that he had funding secured, and ever since then, there's just been this mad scramble on the part of everyone to figure out what that tweet meant,
whether it was legal, what the story behind it was, and everything. And I just found it to be incredibly fun and amusing the whole thing. Oh yeah, I mean we thought that people dissected Donald Trump's tweets quite a bit, but the way they've been examining Elon Musk's tweets is definitely even more intense than that. And I gotta say when he first tweeted it, I don't know about you, but I was really scratching my head at the four twenty reference. A lot of people thought that could potentially
be a joke because four twenty is well code for marijuana, right. Yeah. I have to say I was on vacation during during the week when it happened, but of course even when I'm on vacation, I'm like still checking Twitter every ten minutes. And as soon as I saw that tweet, I was like, there's just no way this is real. Like I didn't for a second actually believe this could possibly be a
real thing. And of course Tesla hasn't gone private at fo dollars a year, but of course, uh, this raises all kinds of questions about the legality of just tweeting something like that, and what funding secured means and what
CEOs can tweet, and you know, Elon's already unusual. And I think our guest today to help us understand this is probably the very best person to talk about it, because as soon as this happened, the entire internet was like, we have to hear from this columnist his take, because it's definitely going to be the best take. Yeah, um, I would probably agree with that, and uh, you know, talking about us disclosure rules is always fun, but this
particular person makes it even more so. And On that note, I would like to bring in this week's guest, Matt Levine. He's an opinion columnist here at Bloomberg, And like I said, honestly, I think with in a few minutes, everybody was like, we gotta get Matt Levine's take on this, and then over the next several weeks, all of Matt's columns on Tesla became must reads. So here to sort of help us, what help us understand everything that happened is Matt, thank
you very much for joining us. Thanks for having me. Matt, where were you talking? I forget where I was exactly, but my column. I've been not writing my column regularly for the last couple of weeks, and I was planning to not do it, and then Ellen came along, and I've been writing mostly about him for a couple of weeks. So when you saw the first tweet, the infamous funding secured uh four dollars a share tweet, what did you
think about it? I didn't think it was a joke per se, But my first reaction was kind of, he's got a little farther than he thinks he has here. You know, I've written about a lot of people who have ah, you know, launching fake takeover offers is a thing that happens, and the SEC and the regulators and prosecutors take that seriously, and people have recently gone to
prison for launching fake tender offers. So I think that Ellen Musk has this funnest for sort of making bold claims that he can't necessarily always back up on Twitter, and I think he was kind of going along with that without without really kind of considering the This is a bit of a more serious there the gravity of what he just said. You know, if he's like, I'm gonna make a car that flies everyone like Ellen, all right, but he's gonna take take the company private at four twenty,
it's a little more serious. It just occurred to me that, um, we should back up a second, because, like I said, this sort of intersection of finance and law is kind of your specialty, which is why so many people want to get your take. You are a lawyer by training, right, I was an m and a lawyer briefly, Um, nothing
I say is every legal advice. And then I was an investment banker, and uh, I have been a columnist, so I've I worked at two of the firms that are that we're advising Musk and his going private transactions some some exposure to this world. Okay, uh, well you were a lawyer, so legal technicalities. What exactly are the sort of disclosure requirements? And didn't Musk potentially get in trouble because he said something on Twitter? Or is it because he said something on Twitter that isn't true? Uh?
Much more the ladder. You know, people think that they're that they're like these real sort of formality rules around you have to you know, you can't announce a going private transaction without you know, filing a proxy and everything. That's not true at all. Like this is how it normally happens, is, you know, the CEO of a company will go to the board and we'll say I would like to take the company private, will say that before
filing a proxy statement. It won't be all done. It will be a sort of the opening of a conversation that usually doesn't happen publicly, but it's not like out of the question that it might at some point become public and the CEO might say, I'm looking into I'm
exploring transaction. They don't normally do it on Twitter, not because like Twitter is illegal, and in fact, the SEC has said, you know, if you if you sort of follow a few formalities and you make it clear you're gonna do this, you can announce material events on Twitter. The problem, you know, first of all, is that turned out on to be true. But but but even beyond that, the problem with doing this on Twitter if you're Elon mu Usk is that no one seems to have vetited.
He didn't run it by the board or any lawyers, and so the stuff he said was kind of careless. You know, normally, whether you put it out in a tweet or a blog post or an eight K or a press release or whatever, you would say I'm thinking about taking the company public, nothing was assured. You know, things might still go wrong. All these all these like sort of lawyery language that at least kind of gives you cover if it doesn't work out. With Elon Musk
was kind of the opposite. He said I'm considering, right, so he didn't actually say I'm definitely gonna do it, and then like two tweets later he's like, this is only contingent on a serrel the road. It's definitely like everything became just sort of more confident um, because that's kind of the way he uses Twitter, which is not the way you want to announce a potential but not button down transaction. Something about the way he used Twitter.
I had this thought, which is that within maybe a day or two after the funding secured tweet, it's just kind of obvious that funding was not secure. Sure even arguably with hours but then but whatever, but they were like a couple of days of like fund speculation about
who it might baby. Yeah. But then I know it's like a couple of weeks later that some of these like analysts who cover the stuff and they're like, it appears that funding is not secured, and we're downgrading, and I downgrading the stock, and I wonder, you know, you're on Twitter, and you also had your background in the investment banking world, whether those of us who are sort of versened in Twitter sort of so it's like, oh, this is sort of you know, this is a guy tweeting.
Where is that if you're not sort of familiar with that world, The thought that you would ever flippantly say funding secured is almost unimagined. Yeah, it's a weird intersection. I mean, like, like you know, as an m and al as a form of reor like the fact that you would do that is still unimagined, even though you know, I joke around on Twitter all the time like it's it's it's you're not it's a it's a mixing of
the world. That just didn't really work right, And I doubt SEC rules have been updated to take into account trolling or saying outrageous things in order to provoke a reaction. Yeah, I mean, he's done. He's made jokes on tweet. He joked about Tesla going bankrupt, He's he joked about introducing
a new model, like a watch. I think he joked about a Tesla watch, and I think at one point, I think the stock moved on the Tesla watch tweet, and I think the SEC was a you know, like they just sort of didn't really Ah, there's some awareness that like things can be a joke, and like the Tesla watch, it was like an April Fool's joke. It was just very clear it was a joke and if you bought stock on that, like, it's your problem. So I think the SEC has has just they're not going
to pick that fight. But this is this is not a joke, you know, And this like did move the stock a lot, and this is a little more serious. Something we know about Ellen is he really doesn't like short sellers. And one of the things people were talking about is whether he tweeted this on purpose to sort of burn the short sellers. And I'm curious if there is a distinction between elon driving to the airport and thinking, you know, I think my conversations with the saudis wherever
bit more or less. I mean, I have the funding security, I'm just going to tweet that versus I'm going to tweet this to really mess with the shore sellers. And whether I get whether intent matters here, yeah, it really does. I mean it's it's a little weird. A think of a company puts out misleading information about something material to the company, that's bad. The company is again to get in trouble for that. But Ellen, when he was doing this was not acting as the company. He was acting
as a potential buyer for the company. So I wasn't doing it in his capacity as CEO. And if your person puts out you know, if I just like say, random lies about Tesla, that's probably not securities, not legal advice, but it's probably fine The reason people get in trouble for doing this stuff is that they have some manipulate they want to manipulate the side, they want to um, they have some manipulative purpose. And usually what that means when like just random people put out fake t cover offers,
usually what it means they bought some stock. They put out the fake taker offer, the stock goes up and they sell their stock. It's like a very simple like fraud, like a scam. With Elan, it seems very unlikely he was selling, right, no indication he was selling. So it's not that. So that's not the thing he's gonna get in trouble for. And so the question is that you have some other manipulative intent. And I think the obvious one that people are looking at is he's gone on
and on about burning the short sellers. He said, you know, in a few weeks or they're going to face the you know, they're gonna have a terrible they're gonna get burned, basically, and uh, you know, having made it so clear that he wants to burn the shorts, that he wants to squeeze the shorts, it suggests that one possible explanation here
is that that's what he was doing. There's another facet about, you know, whether or not he intended to commit some sort of stock manipulation, which is um this notion that maybe he was on either drugs or you know, sleeping pills or valium or something like that at the time when he tweeted. If if his emotional state was UM, I don't know, let's say, like, I don't know, if his emotional state was fragile at the time, would that help him in the eyes of the sec Would he
get a little bit of leeway because of that? I'm not sure there's any precedent for like saying I committed securities, right, I mean there is, right, I mean there are there are There are insider traders who you know, were addicted to things, and they sort of say that at their sentencing and it gets them a little leniency maybe here. I mean, like if it were a joke, if it were like a drug trip, then he would have backed
away from it, right. I mean. The fact that he spent two weeks, you know, putting out blog posts the next day and the next week saying this is why I said funding was security, they suggests that he was a little more serious than that, and that he wasn't just you know, he didn't back away from immediately one of the columns you wrote and just goes back to your experience as a lawyer, was essentially Okay, the tweet is out there, now, how can a law firm and
Ellen sort of back in to making the tweet true? Yeah? Like so obviously clearly like they scrambled to be like, can we make an excuse for this that it looks kind of real? Because lawyers are going to take on any task and they'll try. So what was in your view the most plausible approach to sort of make make it? You know, if you were if you were Elon's lawyer, what would be the most plausible structure to back up
the tweet? So they basically did it, which is they raised money from people who wanted to invest, and there there is commitments, right, and they went out and canvassed. You know, one reason that you might want to go public with this, with this notion before having it all locked down is that way everyone knows about it, and if there is someone sitting around being like I'd love to put ten billion dollars into Tesla, then they'll call
you up. And that kind of seems to have happened, you know, and he announced on Friday that he's calling the deal off. He said, you know, we got a lot of inbound interest. So they did find people who were willing to explore putting money into it. And the journal report that they raised about thirty billion dollars, which is not enough to take Tesla private, but you know,
it's not nothing. It's a lot of money, and you know, and it combines with the notion all along was that a lot of the public shareholders would roll into the new private Tesla. That's not it's not clear they were ever interested in that. Um, you know, some some were, but had you know, some of the big public mutual funds like Tesla, but have regulatory restrictions or have charter
restrictions on how much private stock they can own. So you know, like what they seem to have cobbled together is the thirty billion dollars of money and then some number of shareholders who would roll you can sort of like look at it and it kind of looks like you could almost get to a going private transaction. And that's kind of what they presented to the board. And then Ellen said never mind, So there is a real um.
So I mean, like, the structure that you do is that is offering some combination of new cash from new investors plus rolling over big current investors in in Tesla, and you try to get those two numbers to add to about seventy billion dollars just which is the you know,
four twenty times the number of shares. So like, the other fun problem that that I'm sure that Musk's advisers are working on is that when he initially announced this, one thing he said was that every shareholder was going to get an opportunity to roll over into the new private Tesla, which is one of the weirdest things about it. The idea that you can take all of your public shareholders, all these like mom and pop share olders who have ten shares and roll them into a private company is
not normally how you think of private companies. So I'm sure that people were trying to find some way to make that true. And I know I read a lot of articles analyzing, well, you could do stub equity, you could do this or that. It never seemed all that realistic to me. And Uh in his latest announcement must conceider that there is not really a practical path to
do it. So in terms of damage control, I mean, you briefly mentioned this just that then, but um, the four twenty number, Like how much more complicated would that have made attempts to contain the damage. And also the four twenty number, where do you think he caught that from? Do you think it was based on reality or is it something he just sort of like pulled out of the air. I'll defend that the four twenty number is
like a premium. I think I think that that what he said is that he wanted to offer a premium to the trading precess arend around three, and so he did that math like multiplying by one point two, and he got like four hundred nineteen dollars, and he decided that four twenties sounded like a nicer rounder number. And everyone kind of scoffed at this explanation, But it's totally reasonable.
That's how every going private deal has done. Like there's no you know, there's no he's not doing a discounted cash flow analysis. There's no cash flow. It's it's a it's the way that you do a going private transaction is you offer like a sort of reasonable premium to the current trading price, and then you go to the board and you see what the board says, and you negotiate from there. So I think like offering a round number that's from the from the trading price, it's fine.
The discounted cash flow analysis that that's typically like backed into right. They come up with the number, and then someone's job is to sort of put together a spreadsheet that explains it. At some point, if you were really going to buy the company, he would have to come up with a sense of how many dollars the company was worth, and the board would have to come up with a sense of how many dollars the company is worth, and they'd have to be not too far apart so
that they could negotiate a price. Uh. One way to do that traditionally is a discounted cash for analysis, where you discount the present value of the future cash flows of the company. I think it's very hard to predict that, and I think there's a kind of wide bit ask on what that number is. What do you think about CEOs who are obsessed with shorts? Because both CEOs don't seem to care that much, but every once in a while, there's the CEO comes along that really gets worked up
about them. There's this belief that the shorts can do something to you that I think is mostly wrong. Sometimes it's right. So the companies that need a lot of finance, particularly like you know, in the financial crisis, banks were really worried about shorts because if they couldn't roll their
financing every day, they couldn't stay in business. Um. You know, when Herbal Life was in a fight with Bill Ackman, when Bill Ackman was really trying to get regulators to shut them down, Like they had a real belief that Bill Ackman was doing things to them. Most of the time, though, shorts just short the stock and they think the company is bad or the or the stock is overvalued, and they're like tools to do something bad to the company
are fairly limited. Um. Tesla, you know, Musk talks a lot about how the shorts are pushing a narrative that will destroy Tesla, and it's very hard for me to understand what that could mean. Tesla cells cars, and like, I don't think short sellers are going to like potential car buyers and trying to talk them out of buying Teslas. I mean they were a little bit they're putting out.
You know, they would not you know, they will put out a little um uh claims that the cars are badly made, but like, ah, there's not a lot they can do. And I think the focus on short sellers is more of a like psychological like aversion to having anyone criticized as you than like a real like rational analysis of what the company needs. I think most public company CEOs recognize that the company needs their attention on the business rather than they're like ego driven tweeting about
how evil short sellers are. Isn't Tesla burning through cash quite rapidly though, like I e. Don't they need pretty decent access to financing in order to basically stay in existence for a time to come. And wouldn't that be a vulnerability that the shorts could target by sort of interrupting that flow of financing. Yeah, I mean look like they do. I mean, like, like, you know, the fact is that like the marginal buyer of Tesla stock can buy it from a short seller rather than from Tesla.
Um that narrative is complicated by the fact that, you know, Musk is not fond of saying that they need financing right, and that, and if you're a company that needs billions of dollars of financing from the equity markets, it's weird to say, you know what, we're gonna buy all of our stock back. We don't need any public sheer olders,
We're gonna buy back. It's like, I tend to agree with you that Tesla does require access to the public markets, and that short sellers not by like pushing a narrative or anything, but just by the fact that they are like a supply of shares. Short sellers tend to reduce their access to cheap financing not that much, right, I mean still seventy sixty billion dollar company, right, It's you know,
they still have plenty of access to public markets. Short sellers do it the margin reduce that, But like that's not the narrative that Tesla says. Yeah, this, this whole story has sort of coming in a very weird time where there's this other big thing people are talking about, and that is the supposed shortsightedness of public markets and
whether investors demand companies hit a number every quarter. And Tesla seems like a company that, more than anything, hasn't been forced to adear by the demands of the market, because they never get punished for failing to hit some number, and there doesn't seem to be any particular expectation that if they don't nail uh an EPs or that wall Streets put out there, that they're going to lose their access to the market. It's never an EPs figure because
they don't make money. Now there are like they do sort of announce short term production targets and then when they failed to meet them, people say, ah, you failed to meet them. And I think that there's like a psychological thing where like I think Musk feels like he is subject to the short term pressures of the stock market. But objectively, there's this enormous valuation on a company that doesn't make money, and that valuation is driven purely by a belief that in the long term it's going to
be an enormous success. As you said, it's like it's exactly the sort of counter narrative to this idea that the public markets are so shortsighted. Public markets are funding very cheaply, you know, at very high valuations this total long shot, long term company, and nonetheless Musk is like public markets are short so short term we have to
get out of here, sorry, just to take a step back. Then, do we have any indication or do we have a guess um even about why Elon Musk would have found going private desirable, especially if he's talking about going private in a way that still brings along the existing public shareholders. Yeah, I mean, I don't think he had a fully baked sense of like exactly what it would mean. But I think that basically I don't think he wanted to go private.
I think he wanted to be private. I think he looked at like the company being like Uber, where you don't announce quarterly results and have to do a conference call and get questions about how you miss production targets, you don't have short sellers, like those are the two big things. Like you're like and your stock doesn't move around day to day, and you don't like sort of have whatever demoralizing or moralizing effect that has on your
staff when the stock goes down. So I think he looks at like big private companies and thinks those companies are fine. They have this sort of like public face and the ability to access capital that like public companies have always had, and they don't have the share price moves and the quarter of the earnings reports and the short sellers, and he thought that would be more attractive. That's not a reason to like do a going private transaction and go out to Saudi Arabia and raise money
to buy out your shareholders. But if you could flip a switch and go from being a public company to a private company, I think you would have liked to do that. That reminds me. Actually, So there were a couple of reports recently that the Saudis weren't very impressed by Elon Muska, basically talking about conversations that they'd had. Does Elon have any sort of obligations to the Saudias when it comes to like what he was able to
reveal and not reveal, Not that I know of. I mean I think that normally when things like this happened, you know, you sign agreements, and those agreements might include a confidentiality agreement, but they more importantly, they just include some sort of like coordination on how you'd approach the company and how you'd approach publicity, and you'd agree on how you'd announced the deal in all these things that
didn't that doesn't seem to have happened here. Maybe he violated a convention of that agreement, but I doubt I think more likely is he just had casual, relatively casual conversations with them that didn't lead to any sort of formal agreement, and they feel burned by his representing it as a formal agreement. Let's talk about what's next. So obviously Ellen announced late on a Friday, I think it was eleven PM that like, actually it's over, We're not
going to go private, back to business as usual. But the whole affair has a perhaps damaged Elon's reputation among some in Wall Street, though I don't know how much that will actually matter. But more importantly, there's now an investigation, and we've and others have reported that the SEC has sent subpoenas to Tesla. So, in your view, what are
some of the ways that this could go? I think from like the company's perspective, I think they're on board with Ellen, right, Like the board is like sort of his buddies, and like frankly, the company sort of makes the most sense with this like visionary leader, right, So I think it's very important for them, And I have to say, it looks like this has happened it's very important for them to be like stop doing this, right, like pay more attention to like following the rules and
not misleading shareholders and not like creating enormous painful distractions for the company that that reverberate for months just because like you like were in a car on the way to the airport and you had a whim. So I think in the company's preside of like they're not going to fire him, you know, but like they really should read him the Riot Act and tell him to stop doing this. And it seems like that's happened now. From
the sec IS perspective, I really don't know. I mean, I don't think it's like an open and shut case that he like, uh like committed the crime or the or the you know, the violation of manipulating the stock, because I do think that in his mind he was sort of just sort of giving a window into his thought process and maybe also trying to bring the shorts. So I think they have a bit of a tough case.
If I were the SEC, I would really really really want to bring an enforcement action here because it looks really bad for a big, famous public company CEO to announce a big material transaction when it's not true. Um, but I also like it's not such a sort of like, yeah, it doesn't have so much bad intent that i'd want to like ban him from being the CEO. I'd like want to get some money, yell at him and move on.
You mentioned in one of your columns and everyone found out really amusing this idea that like if you were an SEC staff or you would really want to be on this case, Like this would be like one of the juiciest cases of your career, like that it would be hilarious to be the person who called Tesla to be like, so, where is that funny because everyone else
is like, where's this? Funding is as real as as possible, and yeah, CEC, you could just call up and be like, so really, I think that like the initial stage of this investigation would be just hilarious because like this like very sort of rickety, fake seeming transaction, Like you could
go and be like is this real or not? And like they have every like they have to tell you because if you're the regular there and you have a you know, primo faciae case that something bad has gone on here, I think at this point I'm less envious with those people because at this point they kind of like we feel it feels like we know all the facts, Like they probably know all the facts and they have to decide what to do with it. And it's not like there's an open and shut like either walk away
or like throw the book at them. Like there's some facts are clear about what you do with them is less clear. Yeah, I think it's it's, you know, like the idea that like you can't just let him get away with it because like it just doesn't it's just the stock moved a lot on information that seemed not to be true. But at the same time, you can't be like he can never be a public company director anymore because like he's doing a good job for share
olders in many respects. Yeah, it feels like you have to sort of get inside Musk's mind a little bit as well, And I wonder, I wonder what those conversations would be, like, Yeah, I don't really think you do that. I think you do to bring like a case in court, and I don't think that's what anyone wants. I think what you have to do is there's like probably some brob middle ground where it's like they pay a fine,
he promises not to do it again. The SEC yells at him a lot, and everyone kind of moves on with their lives. You don't really need to talk about exactly what his intent was. You need to be like, this wasn't true, So let's announced that let's keep public market, you know, do something for the integrity public markets by going after Musk in some way for for tweeting this. Though. Well, on that note, Matt uh, that gives us something to look forward to down the line. And it was great
to talk to you. Appreciate your coming up. Thanks for having Joe. I really like that conversation. I always love having matt on. But I think you were right, he's sort of the perfect person to talk about this. Yeah, and the last point, which is sort of this idea that everybody now kinds of nose the facts like that was really fun in the immediate days after the tweet, because it did not seem very ambiguous. It seemed like either he had funding secured or he didn't have funding secured.
And while all of us on Twitter or sort of is this real? It always seemed like pretty straightforward for the SEC to just ask the question and find out, now what you do with that information, though, it'll be interesting, but maybe not quite as maybe not quite as juicy. Yeah. I also wonder still about the long term reputational damage
to Tesla and to Elon Musk in particular. Like, if you think that this is a guy who basically made his reputation and his career by coming up with sort of out of this world ideas and then figuring out how to do them, it kind of feels like in this instance, he came up with a sort of crazy financial idea but had no actual discernible way of knowing
how to follow through with it. So maybe you can be a visionary when it comes to electric cars and not financial markets, or maybe people think you should be a visionary in all things. I don't know. I do wonder whether this really will have any long term ramifications on Tesla's ability to borrow money or tap the capital markets. People say that it will, and like you see analysts talking about how this sort of reduces his credibility, but
you have to wonder whether it actually will matter. Also, outside of financial markets, there's also the whole issue of Testlas suppliers and whether they supply parts in exchange for payments down the down the road. So there are some areas where he does need to maintain trust, but you know, I don't I don't know which way. I could certainly
see this all blowing over. Yeah, And there is a sort of ultimate irony in here that a company that seems to hate public markets so much has actually kind of gotten away with um ignoring certain norms of public markets for so long. And the irony that ostensibly one reason to go private is to avoid distraction and is big of a distraction as they come. Right, Okay, this has been the ultimate tale of Tesla irony. Then, um, shall we leave it there? Let's do it all right?
This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe wi Isn't All. You can follow me on Twitter at the Stalwart, and you should follow our guest Matt Levine on Twitter at Matt Underscore at Levine, and you should follow our producer tofur Foreheads at Foreheads T, as well as the Bloomberg head of podcast, Francesca Levy at Francesca Today. Thanks for listening.