Tesla's market valuation soared more than $4 billion in just over an hour this week after founder Elon Musk startled investors by saying over Twitter that he is considering taking the. But most of those gains have since vaporized, with the company's stock continuing to slide Thursday amid concerns about the plan.
After closing lower on Wednesday, Tesla shares fell nearly 5 percent to end the day at $352.45. The stock had surged to more than $387 on Tuesday after Musk said in a blog post that he wanted to take the company private.
In his post, Musk proposed paying investors $420 for each of their shares. The decline in Tesla's stock price suggests investors are skeptical that he can pull off the gambit. The deal, valued at $72 billion, would amount toby far of a U.S. company.
That's a major risk for a company like Tesla that continues to hemorrhage cash. Few companies or investors have the financial heft to pull off such a deal.
Meanwhile, private equity firms, the deep-pocketed investors behind the biggest buyouts, generally look for companies with positive cash flow so there are funds to service the considerable debt used to finance such transactions.
"The question then is, who would be willing to buy [Tesla] shares at $420, when the stock has never traded at such a level, and was trading ~$300 a week ago?" Bernstein analyst Toni Sacconaghi said in a research note after Musk's tweet.
Twitter hasn't disclosed any details on how it would fund the take-private transaction, with Musk only tweeting he had "funding secured."
Another obstacle is the complexity of the deal. Although Musk floated the idea of forming a special entity for investors who wanted to retain their stakes in Tesla after it went public, it is not clear how the arrangement would work.
Musk said going private would help Tesla set its strategy for the long term, rather than having to make decisions based chiefly to boost its stock price and satisfy Wall Street. In particular, he has railed against "short-sellers," or investors who buy Tesla shares on the expectation that their value will slide.