Another day, another instalment in Elon Musk’s entertaining – but very silly – fight with the US Securities and Exchange Commission, possibly the world’s most powerful financial regulator. The subject, inevitably, is the Tesla founder’s use of Twitter, or more precisely, the precautions he must take before pressing “Tweet”. Has a chief executive of a major company with groundbreaking technology ever found himself in such a ludicrous scrap?
We know the history, of course. Last year the SEC, guardian of the timely release of financial information among other things, forced Musk to step down as chairman of the electric car company (he continues as chief executive) and pay a $20m (£15m) fine over tweets he made about taking the company private. But a less-noticed clause in the settlement said Musk would have to comply with Tesla’s communications procedures when tweeting about the firm. Even Musk, surely, wouldn’t test the limits of that minor requirement.
But the SEC reckons a recent Musk tweet about production volumes broke the order and it wants to hold the Tesla supremo in contempt of court. And here comes the response – an odd mix of heavy legal arguments plus plaintive pleas from Musk that he’s doing his best to comply. So, on the one hand we have the lawyers’ assertion that the SEC is engaged in “unprecedented overreach”. On the other, there is Musk’s boast that he has “cut my average monthly Tesla-related tweets nearly in half” since the original SEC order, as if that is an achievement.
The whole affair feels ridiculous. Social media postings are completely irrelevant to Tesla’s laudable mission to “accelerate the world’s transition to sustainable energy”. James Anderson, a partner at Baillie Gifford, the Edinburgh-based fund manager that is Tesla’s largest outside investor, suggested the other day that Musk should “feel enabled to step back from having to feel so driven to comment” and may be better off not being chief executive. Sound advice.
Interserve punters made a bad bet
The great Interserve restructuring saga is in the final furlong – shareholders vote on Friday – and the outcome remains in doubt. Coltrane, an angry New York hedge fund with a 27% stake, is threatening to vote against a debt-for-equity rescue deal in which current investors will be diluted to 5% (or perhaps slightly more, depending on whether a last-minute sweetener is offered). And it may be joined in the rebel camp by Farringdon, a less vocal Dutch fund.
Interserve’s board will be running its own whipping operation but, given the obvious difficulty in encouraging shareholders to vote for their own near-demise, turnout may be low. The rescue proposal could be defeated.
What would happen then? It’s the question any wavering shareholder should ask. The board’s answer is clear: Interserve would go into administration since the lenders would call a short-term £66m loan. EY is on standby to act as administrator. This administration would be of pre-pack variety, with the banks taking control, as in plan A, and a new Interserve could appear as early as next Monday. The only real difference is that shareholders would get nothing.
Put like that, the financial choice is clear: shareholders should hold their noses and vote in favour on the grounds that something is better than nothing. They would also be doing a favour to Interserve’s 70,000 employees, most of them in the UK. An agreed deal is less messy.
Coltrane has tried to argue the position isn’t so binary but has struggled to make a convincing case. It’s too late in the day to be advancing an alternative vision of a rights issue that would allow shareholders to escape with a 37.5% stake. There may be scope to make EY’s life uncomfortable by bidding for assets but, as a mere $1bn fund, Coltrane looks too small to take on the whole of Interserve.
The New Yorkers can fume but they made a bad bet. At Carillion, they gambled on catastrophe and made a few quid. At over-borrowed Interserve, they punted on recovery but underestimated how the banks have held the aces since an emergency refinancing on punishing terms a year ago. That’s investing: sometimes you lose.