Tesla’s CEO Elon Musk recently created quite a stir after suggesting he was considering taking his car company private. Things got even more serious last week when Musk hired Morgan Stanley to advise him regarding such a bid.
However, news broke early Saturday morning that Musk had abandoned the idea. Although he said there was more than enough funding to do it, ultimately he decided against it because current shareholders asked him not to.
Investors surely had their reasons for wanting the company to stay public, including a very large tax bill if Tesla had gone private. Musk had said his idea would’ve been to allow current shareholders to remain invested if they wanted, via a special fund. He also said he would’ve offered $420 a share to those who wanted to sell.
That being said, if current shareholders would’ve stayed invested they would have had to sell their current shares and then purchase shares in the special fund. So what would the tax implications had been if that had happened? Any investors that made a profit from selling those shares would’ve been taxed no matter what they did with the money.
For investors that got in at the beginning a hefty tax bill would have awaited them. Consider that when the company first went public it opened at a price of $19 a share. The stock has since climbed to a current rate in the neighborhood of $340 a share. For someone that originally invested $10,000, that would now be worth close to $179,000 at the current share price. With the top capital gains tax rate at 20 percent, that’s a $33,800 tax bill.
But shareholders are breathing a sigh of relief knowing they won’t have to pay that price, at least for now.