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A Tesla Buyout Would Mean Elon Musk's $100B Moonshot Pay Deal Crashed In Orbit

When it comes to Tesla and Elon Musk, even a few month's time can feel like an eternity.

Remember, it was just over six months ago that Musk was making headlines by unveiling the most audacious compensation plan in the history of the universe, a $100 billion payout if the electric carmaker grew to $650 billion in size within a decade. Now, in the never-ending Tesla news cycle it's all but an afterthought. An important one, nonetheless.

On Tuesday, Elon Musk took to Twitter to announce he's considering taking Tesla private at a price of $420-a-share and had secured funding from unnamed investors.

Here's the Tweet unveiling what would amount to an over $71 billion buyout ($80 billion-plus when counting debt), the biggest in history by more than double.In a series of posts, Musk appeared to clarify the deal as some form of tender offer, with an option for public holders to roll their shares into a private entity.

Around the market close, Musk then laid out his thinking in a letter to employees. "[T]he reason for doing this is all about creating the environment for Tesla to operate best. As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders."

How would a deal work in practice? Billionaire Michael Dell's take-private of his eponymous P.C. company could be a model, says Robert Willens, an independent tax and transactions expert.

"He seems to be talking about doing a "recapitalization" as opposed to a more traditional management buyout transaction," says Willens to Forbes by email. "In a recapitalization, the shareholders of the corporation, other than Musk of course, are offered a combination of new stock plus cash for their existing shares. When the dust settles, they will have cashed out a portion of their holdings and retained the balance. Presumably, he will also bring in a private equity firm, like Dell did with Silver Lake, to invest in the company. In effect, he will be replacing the public, at least in part, with the private equity firm as his co-shareholders," he adds before concluding, "the Michael Dell model would work here, in my view."

Another wrinkle is that Elon Musk was recently deemed to be a controlling shareholder in a Delaware Chancery court. This, according to Brian Quinn, an expert in mergers and acquisitions at Boston College Law School, means a take private will differ from Dell. "Michael Dell was not a controller prior to the going private transaction, so that deal got a lot of deference. Musk will start from a very different place and unless he essentially deals with Tesla and the board at an arm’s length the transaction will be subject to a higher degree of scrutiny (entire fairness)," Quinn notes.

Unfortunately for Musk, while a take private will minimize scrutiny on his management style and operational performance, it will also likely mean he's fallen short on the first leg of his moonshot pay package.

According to Tesla's Jan. 23 proxy, Musk's $100 billion grant of stock options over the next decade would only begin vesting in 12-tranches when Tesla hit a market cap of $100 billion. For each of the remaining tranches to trigger, Tesla would have to see its market value increase by $50 billion. Overall, the full package stipulated a $100 billion payout if the company was worth $650 billion. However, a $420-a-share takeover falls far short of the start line.

Thus in Elon Musk's crazy world, the biggest buyout in history would mean his jaw-dropping pay package wouldn't even get out of orbit before quietly crashing down. Here's what Tesla said of the grant when it was unveiled:

"Elon's only compensation will be a 100% at-risk performance award, which ensures that he will be compensated only if Tesla and all of its shareholders do extraordinarily well... For each of the 12 tranches that is achieved, Elon will vest in stock options that correspond to 1% of Tesla’s current total outstanding shares (1% of that amount is approximately 1.69 million shares). If none of the 12 tranches is achieved, Elon will not receive any compensation."

Due to Musk's tweet and a report in the Financial Times that Saudi Arabia's Public Investment Fund had bough 3%-to-5% of Tesla's stock on the open market, shares in the electric carmaker closed up by 10%-plus at $379 a share, within reach of a new record high.

Musk, 47, is worth an estimated $21.3 billion, according to Forbes’ real-time billionaire rankings. About half of his fortune is attributable to his majority stake in rocket company SpaceX, which raised money in April at a $25 billion valuation. Virtually all of the rest comes from his 20% stake in Tesla.

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