Musk's Public Endorsement of SpaceX-Tesla Merger May Complicate Talks
Musk Calls Merger "a Good Idea" on Earnings Call
SpaceX CEO Elon Musk said Tuesday on SpaceX's third-quarter earnings call that merging SpaceX with Tesla has "a lot of merit," disclosing that both companies have formed special committees of independent directors at shareholders' request to discuss the possibility. Musk said that as a "conflicted party" he cannot take part in the committees' discussions, describing it as "an odd kabuki dance where two groups of people are talking, and I can't be in the conversation."
Special Committees and Conflict Isolation
The boards of SpaceX and Tesla have each formed special committees made up of independent directors to evaluate a possible merger, Musk said. As CEO and largest individual shareholder of both companies, Musk acknowledged he is a conflicted party and cannot participate in the committees' discussions. Advisers are also in contact with his lawyers to ensure Musk is recused from the merger discussions, according to a person familiar with the talks.
Public Endorsement Raises Investor Concerns
Scale and Control: $3.5 Trillion and One-Third Stake
At Tuesday's closing prices, a combined Tesla-SpaceX would have a total market value of about $3.5 trillion, with SpaceX at about $2 trillion and Tesla at nearly $1.5 trillion. Musk owns nearly a fifth of Tesla and just under half of SpaceX, and analysts have said a merger would give him control of the combined entity; Musk would own about a third of the combined company. Any transaction will require the support of 50% of all outstanding Tesla shares, a threshold Musk characterized as "quite a high hurdle to achieve."
Financial Entanglement and SpaceX's Growth
The companies are already financially entangled, including a $2 billion investment by Tesla in SpaceX. SpaceX reported its first profit as a publicly traded company earlier Tuesday; Musk said the company expects annual recurring revenue of $500 billion to $1 trillion by the end of 2027. SpaceX completed its blockbuster IPO in June, and investor speculation about a possible tie-up has persisted since before that listing.
What's Next: No Guarantee, but "a Lot of Merit"
Musk said the committees have not reached an agreement on the terms of a merger transaction and there is "no guarantee that they will," but he does think there is "a lot of merit to combining the companies." The deal still faces structural hurdles, including the 50% Tesla shareholder threshold and the need to keep Musk out of committee deliberations. Advisers' ability to maintain that separation may determine whether the process survives legal and investor scrutiny.
