Elon Musk, a pioneer in commercial space exploration and electric cars, is now tinkering with one of Wall Street’s most storied products: the management led buyout.
Musk, in tweeting Tuesday that he may take Tesla Inc. private, said he hoped “all” investors would remain shareholders after the buyout rather than follow the conventional approach of cashing out. He looked no further than his rocket company — Space Exploration Technologies Corp. — for a way to keep Tesla shareholders onboard.
For years SpaceX has run an internal stock market for employees and other shareholders, allowing it to remain closely held. They can privately sell shares to sophisticated investors such as Fidelity Investments through liquidity events, according to a letter from Musk to employees. Tesla could use a similar structure to go private without requiring stockholders to cash out, said Sohail Prasad, founder of San Francisco-based Equidate, which helps closely held tech firms hold similar share sales.
In an email to Tesla employees on Tuesday, Musk said the structure envisioned for Tesla is similar in many ways to the SpaceX structure: external shareholders and employee shareholders have an opportunity to sell or buy approximately every six months.
Institutions negotiate a set price for the stock with SpaceX based on criteria such as the rocket company’s financial performance and market conditions, Prasad said.
Shares of SpaceX in the private market have risen in value in the past few years — from about $77 a share in 2015 to $169 as of April, according to SharesPost. Tesla and SpaceX did not respond to a request for comment.
Incentive To Hold
Fidelity has disclosed in regulatory filings that some of its mutual funds, including the Fidelity Growth Company Fund, acquired SpaceX shares through private placements beginning in January 2015. A spokeswoman for Fidelity, which invests