SpaceX and Tesla could soon merge in a $5 trillion move. What would that mean for Australia?
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Elon Musk has confirmed a merger of Tesla and SpaceX is possible, with such a move potentially creating a $5 trillion giant and boosting super funds in Australia.
Musk, who is CEO of both companies, discussed the rumours, which have existed for months, with speculation increasing when SpaceX had its massive initial public offering (IPO) in July.
Musk cannot technically be involved in merger discussion, but he still wields great power over shareholders. AP Photo/Julia Demaree Nikhinson
At an earnings call on Tuesday (Wednesday morning AEDT), Musk addressed the rumours of a merger directly.
“This is definitely kind of a question where I feel like I’m tapdancing through a minefield… but I do think there’s a lot of merit to combining the companies,” he said, though he also made steps to temper expectations.
“Some people out there assume that a SpaceX and Tesla merger is a certainty,” he said.
“I think that would be overstating it.”
He said both companies formed “special committees” of independent directors to discuss the issue.
Musk’s comments come as SpaceX posted a profit for the three months through September of $US4.4 billion ($6.2 billion), with revenues soaring to $US14.6 billion ($20.8 billion), a rise of 161 per cent.
Given SpaceX’s market value stands at about US$2 trillion, and Tesla’s is about US$1.5 trillion, a merged company may have a valuation of about US$3.5 trillion, which is nearly $5 trillion.
Musk holds far more influence over SpaceX than he does Tesla. A merger would change that. AP
SpaceX’s shares rose about five per cent late in the day, with Tesla shares rising about one per cent after the earnings report.
Musk added that, as a “conflicted party” with interests in both companies, he cannot take part in discussions, though experts say Tesla shareholders generally go along with what Musk wants.
“Tesla and Musk have a lot of retail investors who tend to act as fans of Musk and the company and so they are likely to approve it,” Akshaya Kamalnath from Australian National University (ANU) told nine.com.au, saying that a merger would most likely see a share price surge, bringing benefits to individual investors.
“Stock prices are likely to go up with this news.”
She said even the prospect of a merger of the two companies had seen each of their share prices surge, which is good news for super funds and Australia’s sovereign wealth fund, the Future Fund.
The Lynas Rare Earths Ltd. processing plant in Kalgoorlie. Australia mines rare earth minerals used by Tesla. Bloomberg via Getty Images
This is because many Aussie super funds have direct and indirect exposure to SpaceX and Tesla, some hold shares in the companies, as does the Future Fund.
According to its latest report, Australia’s Future Fund holds 40,185 shares in SpaceX with a value of $9.9 million, and 617,352 Tesla shares, valued at $374.8 million.
Kamalnath said a merger would likely see short-term benefits for Australians for multiple reasons, including the boost to super funds.
“I see the potential merger as a good development not just based on stock market price movements, but also because it improves efficiencies across both companies,” she said.
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The deal could also have an impact on Australia’s nickel and rare earth’s industry, with Tesla playing a key role as a buyer in both.
The impact the potential merger will have on the world remains to be seen, but one commentator warned that even if it has an initial positive effect on stock markets, it may not last.
“What’s in the interest of shareholders and investors isn’t always in the interest of the public and the planet,” former CNN commentator Pete Dominick told Today on Thursday.
Emma Zhang, finance lecturer at Monash University, said a merger would probably benefit the super balances of millions of Aussies, but warned it wasn’t without risks.
“It also means greater concentration risk, with more of their investment exposed to one corporate group,” she told nine.com.au.
She also hinted that the reason Musk would favour a merger is not because it would necessarily make him richer.
Tesla’s large cash reserves could prove useful for SpaceX. AP
“It could strengthen his control, depending on how the deal is structured,” she said.
“So the real question is not just how much he owns, but how much influence he gains.”
As it stands, Musk has far more control over SpaceX than Tesla, due to having a larger vote share, but a merger would give him greater control over both businesses.
Associate Professor Le Zhang from ANU told nine.com.au that merging the two businesses together would benefit SpaceX because it needs an almost constant supply of funds to fuel its growth.
“SpaceX is one of the most capital-hungry businesses on earth,” he said.
“While Tesla has a mature business and a cash pile in the tens of billions. A combination would go a long way to easing that funding problem.”
- Reported with Associated Press and CNN
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