I think we may be about to witness the greatest financial judo move in recorded history: Musk will make Tesla private and bury the Shorts, using their own money. It will not cost him a dime. Detailed explanation below:
Why is this even conceivable? Because Tesla is the most shorted stock ever. There are more shorts to cover than shareholders who would prefer to cash-out at $420.
- Shares outstanding: 171M
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Float: 127M shares, of which:
- Musk: 34M shares
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Institutionals: 81M shares.
Almost all of them (above 70M shares) are not prohibited from holding shares in a private company.
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Other (incl retail investors): 12M shares.
Note there aren't enough of those to significantly change the picture.
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Short interest: 35M shares
Now let's assume:
- This is real. Elon actually has someone willing to buy out any shareholder who doesn't want to, or cannot, go private, at $420.
- Most institutional investors will chose to remain with the privatized Tesla and not exit at $420.
- The board approves, and it goes to a shareholder vote, with a guaranteed 2/3rd majority of Musk and almost all the top institutionals.
What will happen?
- You have 35M shorts to cover. Less than 35M shares to do that. Nobody will sell for less than the 420 they know they'll get anyway. Result: Volkswagen-style short squeeze.
- Anybody who wants out can sell during the short squeeze.
- If the squeeze goes high enough, some shareholders may change their mind and sell anyway. Probably all the shorts will be covered, but significantly north of 420.
- The only shareholders remaining after the squeeze are those who want to take their stocks into the private stage.
Result: There are no shareholders left that need to be bought out at $420. The short squeeze took care of those. Tesla goes private. Cost to Musk: ZERO.
A classic judo move - use your opponent's momentum against them.
I realize the above scenario sounds insane. But the logic is sound. Even if more institutionals want out, the short squeeze will take care of most of them, and the actual cost of privatization will be a small fraction of TSLA's valuation.
If you think this is BS, please explain why.
Submitted August 09, 2018 at 06:15PM by shaim2 https://ift.tt/2KDhQnS
