Tesla’s board may reportedly tell Elon Musk to recuse himself

Tesla CEO Elon Musk has said he wants to take the company private.Chris Pizzello / AP

• Tesla’s board of directors may tell CEO Elon Musk to recuse himself as it explores the possibility of taking the company private, CNBC reports, citing people familiar with the matter. 
• According to the publication, the board plans to meet with financial advisors to determine how it will explore the idea of how to convert Tesla into a private company and has told Musk that he must consult a separate, personal set of advisors. 
• The board will probably form a smaller, special committee comprised of independent directors to analyze buyout proposals, CNBC reports. 
• According to the publication, Musk spoke with Saudi Arabia’s sovereign wealth fund about funding Tesla’s transition to becoming a private company, citing one source close to the matter. 

Tesla’s board of directors may tell CEO Elon Musk to recuse himself as it explores the possibility of taking the company private, CNBC reports, citing people familiar with the matter. 

According to the publication, the board plans to meet with financial advisors to determine how it will explore the idea of how to convert Tesla into a private company and has told Musk that he must consult a separate, personal set of advisors. 

The board will probably form a smaller, special committee comprised of independent directors to analyze buyout proposals, CNBC reports. 

According to the publication, Musk spoke with Saudi Arabia’s sovereign wealth fund about funding Tesla’s transition to becoming a private company, citing one source close to the matter. 

Tesla did not immediately respond to a request for comment.

Musk shocked observers on Tuesday when he announced his desire to take the company private, saying he had the funding for such a deal secured and merely needed the proposal to pass a shareholder vote before it could go through. (He indicated via Twitter that he had investor support.)

But two days later, it’s unclear where that funding will come from. Tesla has yet to submit any regulatory filings that provide more detail into Musk’s proposal, and on Wednesday The Wall Street Journal reported that the Securities and Exchange Commission made an inquiry into Tesla about whether one of Musk’s tweets regarding the possibility of taking the company private was truthful.

According to The Journal, the SEC is also looking into why Musk’s first statement about the potential of taking Tesla private was made on Twitter instead of in a regulatory filing. The agency also asked the company whether it believes Musk’s tweet follows SEC rules about protecting investors, the report said.

Bloomberg reported on Thursday that the SEC was “intensifying” its inquiry into Tesla. According to the publication, the agency had already been gathering information about statements Tesla has made regarding sales and manufacturing targets.

An inquiry from the SEC does not necessarily mean an investigation will follow.

“Am considering taking Tesla private at $420. Funding secured,” Musk said on Tuesday via Twitter before issuing a formal statement on Tesla’s website.

Tesla’s share price surged after the tweet, rising by as much as 12%, to over $381, before trading closed.

No details about funding have been disclosed though. And according to Musk’s statement, no final decision has been made. That has some experts raising an eyebrow.

James Rosener, a partner at the law firm Pepper Hamilton, told Business Insider that Twitter was not the right medium for a securities disclosure since the platform’s 280-character limit prevented Musk from disclosing enough information relevant to investors — including the structure of the deal, its tax impact, and the amount of debt it would require — to ensure he’s not misleading them.

According to Rosener, Musk’s tweet likely ran afoul of the SEC’s anti-fraud rules.

“There’s definitely material omissions,” Rosener said. “Clearly, it was not what any lawyer with any experience in this kind of stuff would advise to put out.”

David Whiston, an equity strategist at Morningstar who covers the US auto industry, said he was confused by Musk’s tweets, which he said indicated Musk had both the funding and the shareholder votes necessary to take the company private.

“I’m still trying to understand why he even went public like this,” Whiston said, “because I don’t see a point in going public to say you are considering going private unless you’re trying to get, perhaps, the price higher than $420 a share, or you’re just really eager to hurt the short-sellers. Otherwise, why wouldn’t you just wait until you’re definitely doing a deal to say something?”

Tesla’s board released a statement on Wednesday morning, but it was very brief and offered few details besides that Musk met with the board last week to bring up the possibility of going private. Musk said via Twitter on Tuesday that the deal was contingent on a shareholder vote but that “investor support is confirmed.”

According to Probes Reporter, a research firm focusing on undisclosed SEC investigations, the SEC investigated Tesla from June 2016 to May 2017 regarding the Model 3 sedan. Tesla did not disclose the investigation, which did not result in an enforcement action, the firm said.

Tesla has been public since 2010, but Musk has said in the past that he would like to take Tesla private.

“I wish we could be private with Tesla,” Musk said in an interview with Rolling Stone published in November. “It actually makes us less efficient to be a public company.”

Musk has also said on multiple occasions that Tesla will become profitable by the end of this year and won’t need to raise additional funds, despite its increased cash-burn rate in recent quarters.

Read CNBC’s full story here.

This is a developing story. Check back for updates.

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