Key points
- Musk confirms Tesla and SpaceX merger committees
- Tesla and SpaceX haven't agreed on deal terms
- Musk says his conflict keeps him out of talks
Tesla (TSLA) and SpaceX (SPCX) have formed independent board committees to evaluate a possible merger, Elon Musk said on SpaceX's earnings call Tuesday. The committees were established at shareholders' request, but no deal terms have been agreed, Fortune reported.
Musk cautioned that a merger is not certain. Tesla shares were up 1.7% at $380.17 in after-hours trading as of 9:01 p.m. ET. SpaceX shares rose 8.3% to $160.09 after the company reported its third-quarter results.
Musk says his dual role keeps him out of talks
Musk said he cannot participate in the committees' discussions because his leadership of both companies creates a conflict of interest. "These special committees consist of independent directors," he said on the call. He described the process as "tap dancing through a minefield."
A special committee brings together directors who are independent of the parties with conflicting interests to evaluate a proposed transaction. Here, the conflict comes from Musk's leadership and ownership of both companies.
Musk owns 19.8% of Tesla, according to Tesla's latest proxy statement, and SpaceX's June IPO prospectus said he'd hold about 82.4% of SpaceX's voting power after the offering.
A high bar for Tesla shareholders
Musk said a merger would need approval from a majority of all outstanding Tesla shares. That's a higher bar than a majority of the votes cast, because the count includes every outstanding share, even shares that never vote. He called it "quite a high hurdle."
No deal is on the ballot yet. Tesla filed its proxy statement on Monday for its December 3 annual meeting, and it lists three proposals. Shareholders will elect three directors, one of them Musk. They'll also cast an advisory vote on executive pay and ratify the auditor. Neither Tesla's proxy nor SpaceX's earnings release mentions the merger committees.
I argued last week that a SpaceX merger would matter more for Tesla stock than this quarter's results, and I said a merger proposal in the proxy would support that view. The proxy didn't include one.
The two companies are already tied together
Tesla owns part of SpaceX already. In January, Tesla agreed to invest about $2 billion in xAI Holdings, Musk's AI company, according to the proxy. After xAI Holdings became part of SpaceX, that investment turned into SpaceX Class A shares, and Tesla completed the purchase on March 12. Tesla director Ira Ehrenpreis has also served on SpaceX's board since February.
Based on Tuesday's closing prices, SpaceX is worth about $2 trillion and Tesla nearly $1.5 trillion, giving the two companies a combined stock market value of about $3.5 trillion. No deal price has been set.
SpaceX's quarter beat expectations
SpaceX reported third-quarter revenue of $14.6 billion, up 161% from a year earlier, and net income of $4.4 billion, compared with a $1.1 billion loss a year ago. Analysts had expected about $12.86 billion in revenue, according to Visible Alpha consensus figures.
Tesla reports its own third-quarter results after the market closes on Wednesday, October 21, with a webcast at 5:30 p.m. ET. It'll be Musk's first call with Tesla analysts since he confirmed the committees.
