In his typically controversial fashion, Tesla (NASDAQ:TSLA) CEO Elon Musk dropped a bombshell on his Twitter account, which he has used as a platform for pranks, vitriol and now for a proposal to pull off one of the biggest buyouts in US history. Musk tweeted that he was considering taking the electric car giant private at $420, which implies a 12% premium from where TSLA is trading.
Musk’s announcement was initially met with widespread skepticism, with many people connecting the proposed price to 420 being a common slang term for marijuana. However, in a letter posted on the company’s blog, Musk confirmed his consideration to take TSLA private. That said, the go private offer decision is not finalized, and is subject to shareholder vote.
Oppenheimer analyst Colin Rusch commented, “With consideration of a take-private strategy announced, we expect limited stock movement near-term until further details become available for several reasons. First, we expect vigorous debate on the fairness of the proposed $420 price as we believe many shareholders are seeking a liquid security that has significant upside to the indicated take-private price. Second, funding sources for such a transaction are not yet identified nor how much capital would be needed given the expected option for shareholders to participate in the transaction. Third, we note this rally has enhanced TSLA’s credit position by putting $890M of its March 2019 converts into the money easing one credit concern, but if execution trouble continues we believe this announcement likely complicates and slows a potential capital raise.”
Net net, Rusch reiterates an Outperform rating on Tesla shares, with a price target of $385, which represents a slight upside potential from current levels. (To watch Rusch’s track record, click here)
If we turn to the Street in general, we can see that Wall Street has a neutral point of view on Tesla, with TipRanks analytics exhibiting TSLA as a Hold. In the last 3 months, the stock has received 10 Buy, 6 Hold and 8 Sell ratings. These analysts have an average price target on the stock of $321.89, which implies nearly 14% downside from current levels.