NEW YORK--U.S. regulators are asking Tesla Inc why Chief Executive Elon Musk announced his plan to take the electric carmaker private on Twitter and whether his statement was truthful, the Wall Street Journal reported on Wednesday.
Musk announced his plan on his personal Twitter account on Tuesday, and the U.S. Securities and Exchange Commission has asked Tesla about the facts of the matter, why it was disclosed on Twitter rather than in a regulatory filing and whether it believed investor-protection rules had been met, the Journal said.
The agency declined to comment and Tesla did not immediately respond to requests for comment. Tesla shares fell 2.4 percent to $370.34 on Wednesday after closing up 11 percent on Tuesday, ending about $50 per share below what Musk said he was considering offering.
Musk had dropped the surprise plan in a terse tweet, saying, "Am considering taking Tesla private at $420. Funding secured."
He has not provided details or evidence of the funding by Twitter or in a following blog posted on the Tesla web site, and several securities attorneys told Reuters Musk could face investor lawsuits if it was proven he did not have secure financing at the time of his tweet. "The words 'financing secured' are the danger point – that’s a statement of fact and could set him up to be accused of a material misstatement if it's proven false," said Erik Gordon, an assistant professor at University of Michigan’s Ross School of Business with a background in law.
Using Twitter to announce materially important information is not common, but the SEC allows companies to use social media to announce key information in compliance with its fair disclosure rules if investors are alerted about which outlets will be used.
Musk is a prolific tweeter and Tesla alerted investors in a 2013 SEC filing that they should follow Musk's Twitter feed for "additional information" about the company. There is no reference to Musk's Twitter account on the company's investor relations page under "investor communication," although Tesla's Twitter feed is included.
Some Wall Street analysts were skeptical of Musk's ability to gather the huge financial backing to complete such a deal, given that Tesla loses money, has $10.9 billion of debt and its bonds are rated junk by credit ratings agencies. "Who gives $30 to $50 billion to buy back the shares?" asked NordLB analyst Frank Schwope. "And if you stay as a shareholder you get less information than before and you depend more and more on Elon Musk."
Tesla's board on earlier on Wednesday said it was evaluating taking the company private, which would be the biggest leveraged buyout of all time. In a statement on Tesla's website https://bit.ly/2vJiaMm, six of Tesla's nine directors said the board had met several times over the last week to discuss such an idea and was "taking the appropriate next steps to evaluate this."
Musk's plan for a price of $420 a share would value a deal at more than $70 billion. Tesla said on Wednesday the discussions had addressed the issue of how to fund such a deal, but gave no details. The statement did not address how the $420-per-share price was established.
