Tesla-SpaceX merger faces headwinds after midterm vote

Independent directors at Tesla ↗ 2.91% and SpaceX are reviewing whether to combine Elon Musk's two largest companies. Wall Street is divided over the idea. Some analysts warn about dilution for shareholders, while others point to possible shared use of rocket, chip and communications technology, according to a Simply Wall St analysis published Nov. 11. Neither company has announced a definitive agreement, and the deal now faces a tougher political climate after the midterm elections.finance.yahoo.com

How the review began

Musk first disclosed the committees on SpaceX's third-quarter earnings call on Oct. 20. He said both boards had formed them "at the request of shareholders," according to TechCrunch. He called a merger "a good idea, but it's really up to the special committees of both companies." He added that he cannot take part in the talks because he is a conflicted party, Fortune reported. At current market values, a combination would create a company worth roughly $3.5 trillion, Fortune noted.techcrunch.com+2

SpaceX later said in a regulatory filing that any deal would need approval from its special committee, its board and its controlling shareholder, Musk, Reuters reported via The Economic Times. Tesla's committee has a broader mandate: to explore "deepening Tesla's relationship" with SpaceX, Law360 reported. On the Tesla side, Musk said a deal would need "a 50% vote of all shares, not just those who vote," which he called "quite a high hurdle," The Verge reported.law360.com+2

Analysts split on value and risk

JPMorgan ↗ 0.39% expects an all-stock deal led by SpaceX at a typical premium of 30% to 35%. That structure would keep Musk in majority voting control of the combined company, according to TIKR. The bank also called the combination "strategically coherent on paper," but it warned that approvals across several countries, especially China, could slow it down, TheStreet reported.finance.yahoo.com+1

Governance experts have also raised concerns. If SpaceX buys Tesla, Tesla holders could trade shares in a company where Musk lacks majority voting control for shares in one where he has it, SMU law professor Carliss Chatman wrote in a Bloomberg Law column. She also noted that Tesla director Ira Ehrenpreis has sat on SpaceX's board since February.news.bloomberglaw.com

Political headwinds

The midterms have added a new layer of uncertainty. After Democrats won control of both chambers of Congress, SpaceX and Tesla lost about $456 billion in combined market value between election night and Nov. 5, TheStreet reported. Kathleen Brooks of XTB said congressional hearings could push back the deal's projected 2027 closing date, according to the same report.finance.yahoo.com

Dan Ives of Yorkville Ives estimated that SpaceX shares carry a "political discount" of 20% to 25%. He still believes the merger will happen. "I still believe SpaceX acquires Tesla," Ives said, according to Stocktwits.finance.yahoo.com