SpaceX and Tesla Boards Set Up Committees to Review a Possible Merger

The boards of SpaceX and Tesla have each formed special committees of independent directors to review a possible merger of the two companies, Elon Musk said on Tuesday, October 20, during SpaceX's third quarter earnings call. Musk, who is chief executive and the largest individual shareholder of both companies, said the committees were created at the request of shareholders.

"Because I'm a conflicted party, I can't actually be in the discussions of the special committees, so it's this sort of a ... it's an odd kabuki dance where two groups of people are talking, and I can't be in the conversation," Musk said in response to a question on the call. He did not name the committees' members.

What a combined company would hold

Musk said he supports the idea. "I do think there's a lot of merit in combining the companies," he said on the call, pointing to gains from cooperating on superintelligence software, robotics, Starmind, SpaceX's planned orbital AI data center project, and Terafab, the joint chip manufacturing project between Tesla and SpaceX.

The scale would be hard to match anywhere in business. Tesla has a market valuation of around $1.5 trillion and SpaceX a valuation of around $2 trillion, the Wall Street Journal reported. A deal would put the world's biggest commercial rocket launcher and satellite internet operator, and the second largest electric car maker, under one corporate umbrella. A combination of that size would also draw regulatory scrutiny, the Journal noted.

No agreement, and no guarantee

The special committees have not reached agreement on the terms of any transaction, with no guarantee that they will, Musk said. "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, adding that shareholders would have to be supportive and would vote on the matter.

The vote math differs sharply at his two companies. Musk holds more than 50 percent of the voting power at SpaceX after its public listing. At Tesla, a deal would need a 50 percent vote from all shareholders, not just those who vote, Musk noted.

Investors reacted within hours. SpaceX shares rose more than 7 percent in after hours trading and Tesla shares gained about 1 percent, the Journal reported. The comments came on the same day SpaceX reported the first profitable quarter since its listing, with net income of $4.4 billion on revenue of $14.6 billion. Tesla reports its own third quarter results on Wednesday.

A pattern of combining his companies

Musk has joined his companies together before. Earlier this year he merged his artificial intelligence startup xAI into SpaceX, and in 2016 Tesla bought the solar installer SolarCity, where Musk was the largest shareholder. Tesla and SpaceX already do business with each other: Tesla sells electric vehicles and energy storage products to SpaceX, and the two work together on projects that include the Roadster sports car and Terafab.

Analysts had been speculating about a merger for weeks because of those ties. Barclays analyst Dan Levy wrote in an October 14 client note that a merger could be announced ahead of Tesla's annual meeting in December, although that now looks unlikely, since proxy materials released this week showed a bare bones agenda. Tesla's October 19 proxy filing lists seven independent directors under Nasdaq rules, including board chair Robyn Denholm and Ira Ehrenpreis, who also sits on the SpaceX board. SpaceX lists six independent directors.