New US foreign investment law could block Saudi Tesla buyout

The billionaire CEO of electric car manufacturer Tesla, Elon Musk, would likely need clearance from US national security officials for any proposal to take the firm private, according to reports.

Bloomberg said the deal would be among the first to be reviewed by US officials since President Donald Trump signed legislation on Monday to expand the Committee on Foreign Investment in the US’ (CFIUS) authority to investigate and block foreign takeovers of American companies.

The new law makes it pretty clear that this administration is very keen on protecting US technology,” Joseph Falcone, a partner at Herbert Smith Freehills in New York, was quoted as saying.

“Any foreign investment in Tesla would at least notionally be of interest to CFIUS.”

The heightened scrutiny would complicate any deal for Musk amid reports his “funding secured” tweet last week has resulted in a subpoena from the US Securities and Exchange Commission (SEC) over potentially misleading investors.

Musk himself sought to justify the tweet in a lengthy blog post on Monday, stating that Saudi sovereign the Public Investment Fund (PIF), which has an estimated $250bn of assets, had expressed support for a buyout deal after building a 5 per cent stake.

The “Saudi sovereign fund has more than enough capital needed to execute on such a transaction”, he suggested.

Read: Musk says Saudi sovereign fund backs Tesla buyout

Reuters reported on Wednesday that the PIF’s other commitments in Saudi stocks and other investment projects would mean it was unlikely to play a significant role in any Tesla buyout.

Read: Saudi fund could only play minor part in Musk’s $72bn Tesla plan

Bloomberg cited lawyers as stating even before the new law passed on Monday a major investment in Tesla by Saudi Arabia would have drawn scrutiny.

“The big question is whether this technology is really sensitive enough and whether if acquired by a non-US company it could have some kind of negative impact on US national security,” Thad McBride, a lawyer at Bass, Berry & Sims in Washington, was quoted as saying.

Tesla’s board has formed a special committee of three independent directors to evaluate any proposal from Musk or a rival bidder.