Elon Musk picks his coziest bank to help go private

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(Aug 16): Who else, but Goldman Sachs? As he attempts to lead Tesla Inc’s potential exodus from the public market, Elon Musk has turned for help to the very bank that’s always had his back.

It should come as no surprise that when Musk tweeted late Monday he was “excited to work with” advisers on his plan to take Tesla private, the first name he mentioned was Goldman Sachs Group Inc. While Musk may be fed up with being CEO of a public company, he’s still keen to stay close to the establishment by showing favour for a Wall Street giant.

If getting a role on what could be Tesla’s biggest deal yet was the goal, then Goldman Sachs made all the right moves. Banks often try to latch onto key clients early in hopes of landing the mandate for larger deals later, and Goldman Sachs has been with Musk since at least 2010, when it helped take Tesla public. It’s also given Musk hundreds of millions of dollars in personal loans.

Now, the firm is advising on a process that’s already drawn scrutiny. Musk’s tweet last week that he had “funding secured” to take the company private shocked the market and has drawn scrutiny from the Securities and Exchange Commission. At the time of Musk’s tweet about working with Goldman Sachs, the firm hadn’t signed an official mandate for the role, people familiar with the matter said Tuesday.

Elon Musk @elonmusk Replying to [email protected] I’m excited to work with Silver Lake and Goldman Sachs as financial advisors, plus Wachtell, Lipton, Rosen & Katz and Munger, Tolles & Olson as legal advisors, on the proposal to take Tesla private 
Sent via Twitter for iPhone.

Goldman Sachs confirmed its advisory role on Wednesday, saying it would remove its ratings and price target for the stock.

The bank has held the coveted role of lead underwriter on US$2.2 billion-worth of Tesla’s public share sales, including the IPO and five follow-on offerings, according to data compiled by Bloomberg. On the only such deal it didn’t lead, a US$2.3 billion share offering in 2016, the firm was still second only to rival Morgan Stanley.

Goldman Sachs also took the lead role on the 2012 IPO and two subsequent share sales for SolarCity Corp, the Musk-backed solar energy company that Tesla acquired in 2016 in a deal valued at about US$2 billion.

That means the bank has made more than US$22 million in fees from Tesla share sales over the past eight years, according to Bloomberg calculations. Compensation on a take-private deal could be much higher — Jeffrey Nassof, a director at Freeman Consulting Services, estimated last week that banks advising Musk could take home US$30 million to US$50 million.

Personal Loans

Goldman has also made millions underwriting the company’s debt offerings. It was the lead underwriter of Tesla’s inaugural US$1.8 billion junk bond offering last year, though the fees it was paid to place US$450 million of the offering weren’t disclosed. It’s also led convertible bond offerings for the company, pocketing US$12 million in fees for two deals in 2014.

Musk, a serial entrepreneur who’s co-founded several companies dating back to 1999, has also personally borrowed money from Goldman Sachs over the past seven years, according to filings reviewed by Bloomberg.

Starting in 2011, Goldman Sachs loaned Musk US$35 million, Tesla’s 2012 stock prospectus shows. Musk used a portion of the loan to buy shares in the company. Goldman Sachs later extended that credit line by US$50 million.

At one point the amount that Musk owed Goldman swelled to US$275 million, a filing from 2013 shows. As of March last year he was no longer in debt to the bank, though he still owed about US$344 million to Morgan Stanley, according to public documents filed with the Securities and Exchange Commission.

Price Target

The relationship between the billionaire and the bank hasn’t been without scrutiny. Former Goldman analyst Patrick Archambault raised eyebrows in 2016, when he upgraded Tesla shares to a “Buy” rating from “Neutral”, just hours before it was announced his firm would co-manage with Morgan Stanley, a sale of new Tesla stock.

At the time, a spokeswoman for Goldman Sachs said the bank followed all standards and policies with respect to the separation between research and sales.

Goldman Sachs’s current auto analyst David Tamberrino has been more conservative about Tesla’s stock. With shares trading at about US$335, his price target — before the bank went restricted on the shares — was US$210 a share with a “Sell” rating.

Goldman also owns almost 1 million shares in Tesla, according to data compiled by Bloomberg. The bank owned almost triple that in the first quarter of 2016.