Dividends and Tesla’s lavishly priced shares may soon lure it into the M&A game

Now that Tesla is included in the S&P 500 Index, it means all the index funds which mirror the index own Tesla shares or the number of people who technically own it has grown larger. With the inclusion in the index, the price of the shares rose or the value of the company increased. Imagine if you won millions in a lottery, as a good steward you would do many things, but it all likelihood hopefully a small portion would be wasted. Your inbox would be full about all the great opportunities to put your money in and some of them would fall below what you invested in. The larger portion, ideally you put into long term money which could not be touched until you figured out a good plan.

As Tesla’s shares rise, every Mergers and Acquisition Banker is pitching the Tesla management team with ideas of what companies they should buy with their stock.

In an article by Eric Reguly, 20 years or so the biggest blockbuster M&A was Time Warner -AOL. The internet was becoming a thing and AOL had a policy of sending every household a disc so people could upload the AOL and you email address would be AOL. Given it was free and Wall Street was valuing the eyeballs you had, not whether the company made money, but number of people using your service, the shares of AOL soared. AOL was going to be the big thing, as the price of the shares kept going higher, the business which made little money but had lots of promise, decided to find a company that was big, stable and had lots of cash. Time Warner was the company and Jerry Levin’s company trading at 11 times earnings joined AOL trading at 35 times earnings. If you examine the Time Warner website, AOL is not mentioned, the merger did not work on well, but the idea blending content with the internet has over the years.

Christoper Bloomstran, president of Semper Augustus Investments of Colorado believes it would be foolish for Elon Musk not to buy GM or Ford. Telsa is up 840% in the past years taking its market value to $615 billion which is 6 times GM and Ford combined.

Telsa will sell 500,000 cars in 2020, GM will sell 7.5 million vehicles.

Telsa makes most of its money selling zero-emission credits to rival automakers not selling electric vehicles.

Tesla is a data driven energy company, but GM has an abundance of factories, engineers, suppliers, distribution centers and dealers.

Should they merge? maybe, maybe not.

Linking to dividend paying stocks, one of the wonderful things about a company that consistently makes money is it should not about capital allocation and what investments to do and what investments to stay away from. Making profits is a good thing, managing the money is an even better skill. In your portfolio, the companies are pitched on a regular basis, what they say no to is sometimes why you invest in them.

There are more questions than answers, till the next time – to raising questions.

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