SpaceX-Tesla Merger Chatter Overshadows Earnings as Shares Slide
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Speculation about a merger between SpaceX and Tesla took centre stage on Wall Street after the two companies’ earnings this week, overshadowing a report from Tesla that showed declining auto revenue and an even steeper drop in its energy business, CNBC reported. Tesla shares fell 3% on Thursday and are down 17% for the year, while SpaceX plunged 9%, putting the stock back below the opening price that followed its June market debut, the network said.
Analysts at William Blair wrote in a note on Thursday that Elon Musk’s quest for a merger is about control rather than strengthening the businesses. “We fully respect the overlap and collaboration potential, but view this is a truly unique case where Musk runs both companies almost as if they are one entity already,” the analysts wrote, adding they were “hard-pressed to find a material opportunity that could only be achieved by an official combination,” CNBC reported. Tesla and SpaceX did not respond to requests for comment, the network said.
Musk endorsed a potential tie-up on SpaceX’s earnings call on Tuesday, saying “Do I think it would be a good idea? Yes,” and revealing that both companies have formed special committees to explore a transaction, CNBC reported. At Tesla, “we will need a 50% vote of all shares — not just those who vote — but of all shareholders, and that’s quite a high hurdle,” Musk said, according to CNBC. Musk holds about 80% voting control of SpaceX through 10-to-1 supervoting shares but beneficially owns 19.8% of Tesla, the network reported.
SpaceX’s market capitalisation is close to $2 trillion and Tesla’s is around $1.5 trillion, making SpaceX the likely acquiring company in a stock swap, CNBC reported. Eric Talley, a Columbia University corporate law professor, told the network that a merger could resolve shareholder disputes over where Musk spends his time and protect against litigation over divided loyalties.
The hurdles are steep. Former Tesla board member Steve Westly told CNBC he expects a merger proposal to be announced quickly, ideally “before the elections,” and said the big question is what US regulators will say. Talley noted China’s national security regulator would likely take a particular interest, given hundreds of thousands of Teslas collecting data on the road and SpaceX’s Starlink satellites feeding data to the US government, CNBC reported. Kevin Li of Counterpoint Research in Beijing cited antitrust scrutiny, national-security considerations and cross-border reviews as significant challenges, the network said. The Wall Street Journal reported that a merger would formalise a long-running partnership between the two companies, and Bloomberg’s Rundown recapped the talks, which the BBC said Musk has publicly confirmed.