SpaceX, Tesla Form Merger Committees, Musk Says

Elon Musk runs both companies, owns large stakes in both and wants them combined. He also says he cannot take part in the talks. “Because I’m a conflicted party, I can’t actually be in the discussions of the special committees,” he told investors on SpaceX’s third-quarter earnings call on Tuesday, describing the process as “an odd kabuki dance” in which two groups talk without him, TechCrunch reported.

Those committees are the news. According to Musk, the boards of SpaceX and Tesla have each formed one, made up of independent directors and set up at the request of shareholders, to review a possible merger. Reuters called it the first official confirmation that the companies were formally talking, after speculation about a deal had gained traction in recent weeks. Neither company has filed anything about the committees with the SEC, and Musk’s remarks are so far the only account of them. (For how Musk’s businesses already overlap, see TSN’s Musk Companies hub.)

Musk backs the idea but says no deal is agreed

Musk was careful to separate his enthusiasm from the process. “I think it would be a good idea, but it’s really up to the special committees of both companies,” he said, according to Reuters. He went out of his way to cool expectations: “I think some people out there assume that a SpaceX and Tesla merger is a certainty, and I think that would be overstating it,” he said, according to the call transcript.

The committees have not reached agreement on the terms of any transaction, Musk said. “Obviously, there is no guarantee that they will.” No price, structure or timetable has been disclosed, and he did not say which company would buy which.

His case for a combination leans on work the two already share. “I do think there’s a lot of merit to combining companies as we are pretty much in the superintelligence singularity,” he said, as quoted by The Verge, listing AI software, chip design, robotics, the Starmind orbital data-centre project and Terafab, the chip-making venture the two companies say they will build and run together.

Tesla’s shareholders are the higher hurdle

Approval looks very different on each side. Musk has more than 50% of SpaceX’s voting power since its listing, TechCrunch notes, which would make a vote there easier. At Tesla, he said, a deal would need “a 50 percent vote of all shares, not just those who vote, but of all shareholders,” which he called “quite a high hurdle to try to achieve”. “At the end of the day, the shareholders have to be supportive of this,” he added.

Musk owns nearly a fifth of Tesla and just under half of SpaceX, Reuters reports, and analysts have said a merger would give him control of the combined company. Citing one unnamed person familiar with the matter, Reuters also reported that the talks began in recent weeks, could result in SpaceX acquiring Tesla, and that Tesla has been working with an investment bank.

The Verge points to the trade-offs. If Tesla bought SpaceX it would have to issue millions of new shares, diluting existing owners, and SpaceX’s launch plans need tens of billions of dollars a year. Most analysts and legal experts expect SpaceX, which has carried the higher valuation since its listing, to absorb Tesla instead, the outlet says, and some Tesla shareholders may balk at that.

Who sits on the committees is not known

Musk did not name the committee members, only that they are independent directors. TechCrunch lists seven independent members of Tesla’s board in its 19 October proxy filing, including chair Robyn Denholm and JB Straubel, and six independent directors at SpaceX. One name appears on both lists: Ira Ehrenpreis, who chairs committees at each company. Whether he sits on either merger committee has not been disclosed.

Investors reacted quickly. SpaceX shares rose 8% in extended trading after the call and Tesla’s rose 1.8%, according to Reuters. Barclays suggested last week that a deal could be announced before Tesla’s annual meeting, which The Verge says is set for 3 December.

Tesla gets its own chance to speak sooner: it reports third-quarter results on Wednesday 21 October. The questions Musk left open are who sits on each committee, how long their review will take and what, if anything, Tesla shareholders would be offered.