SpaceX offer will be hard for Tesla to refuse

Tesla

Yesterday 18:44

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.
By Jonathan  Guilford
NEW YORK, Oct 21 (Reuters Breakingviews) - Elon Musk is back in the lab. He said on Tuesday that the two linchpins of his empire, SpaceX SPCX.O and Tesla TSLA.O, are experimenting with the idea of a merger. It would be a colossal undertaking to combine cars, robots, chatbots, batteries, satellites, social media, rocket ships and microchips into a $4 trillion mega-conglomerate. Although it defies any conventional financial wisdom, so does pretty much anything the billionaire has ever done.
Despite some linkages between the companies, like shared semiconductor and software ventures, the ultimate prize for Musk is simple: control. He is CEO of both, but super-voting stock gives him 85% of the say at SpaceX compared to the 18% conferred by his common equity in Tesla. Consolidation would theoretically give him reign over the entire empire. The issue will be ensuring that ostensibly independent board committees strike a fair deal for other shareholders, too.
Tesla has taken a backseat since the SpaceX initial public offering in June. The electric-car maker's shares nevertheless trade at more than 200 times expected earnings for the year, according to estimates gathered by Visible Alpha. Even as Wall Street's expectations for 2026 operating income crashed by 80% over the past two years and competition with rising Chinese rivals accelerates, Tesla hovers on the promise of self-driving cars and robot butlers.
The optimism is distressing. Alphabet-owned Waymo and others already have robo-taxis on the road and a plethora of startups are pushing their own androids. SpaceX, meanwhile, is on a tear, thanks in part to its pivot into renting servers to AI chatbot developers. After reporting 830% growth in the unit from a year earlier on Tuesday, the company added some $160 billion of market value.
SpaceX is now worth more than 1.4 times Tesla. The gap could prove fleeting: mounting concerns over data-center operators such as CoreWeave threaten to derail the industry. Moreover, the two companies were roughly equally valued in July.
Wider valuations make it easier for the boards to structure a deal. SpaceX can issue non-voting shares to subsume Tesla, but it would require owners of more than half of Tesla's shares to vote in favor of eliminating their vote in exchange for a stake in the enlarged enterprise.
In a merger, Tesla would contribute 41% of the value and SpaceX the rest. Musk currently holds voting control over 57% of it all. Rejecting an M&A option that lacks cash, a healthy premium or voting rights would be more rational. Then again, for a man hellbent on colonizing Mars, there's little room for rational.
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CONTEXT NEWS
SpaceX CEO Elon Musk said on October 20 that both the rocket company and automaker Tesla, where he also serves as CEO, have formed special board committees to discuss a potential merger, adding that a combination would be a “good idea.”

(Editing by Jeffrey Goldfarb; Production by Pranav Kiran)
((For previous columns by the author, Reuters customers can click on GUILFORD/ Jonathan.Guilford@thomsonreuters.com))