00:00Now that the giant SpaceX IPO is away, the big question is, will that company buy Elon
00:06Musk's other big listed company, Tesla?
00:08The market sure seems to be pushing that way.
00:11There are multiple reasons why Elon Musk might want to combine these two businesses.
00:16He's been obsessed now for a while about gaining more control over Tesla.
00:20And he's also been melding the narratives between the two companies.
00:25SpaceX is a rockets company.
00:27Tesla is an EV company, but lately they've both become, in his telling, AI companies.
00:33This seems to be leading towards some kind of combination towards a bigger, call it Musk
00:39Inc.
00:40There's huge conflicts of interest here because Musk effectively controls both companies.
00:45The chances are, if you did this deal with any two other companies, the dilution, the
00:51lack of strategic rationale and the conflicts would cause a shareholder revolt.
00:55These are Elon Musk's shareholders and they tend to behave a bit differently.
01:00We've seen time and again shareholders in Tesla shrugging off setbacks, deteriorating financials,
01:07dubious acquisitions, incidents of previous conflicts of interest coming to the fore.
01:13In this instance, we've seen with Tesla's high stock multiple and the gangbuster reception
01:19of SpaceX that investors seem very enthused just with the idea of giving Elon Musk total
01:26free reign to do what he wants.
01:28Therefore, if he decides that he wants to consolidate his empire, whether the strategic rationale is
01:33there or not at an industrial level, they'll probably go along with it.
01:37One way to think about a merger, which in this case would be all stock because no one's going
01:43to pay $2 trillion in cash.
01:45You think about how many of these shares of SpaceX would I have to hand over to buy one
01:52share of Tesla.
01:53It was roughly three SpaceX to one Tesla.
01:56But within a few days that had dropped to two, a drop of a third.
02:00This is really important because one of the key objectives I think that Elon Musk would
02:06have is that whatever the resulting entity would be, he would have dominant control.
02:12And the way to think about this is that with SpaceX, he has ironclad control.
02:18He has a dual class shareholder structure that gives him a very dominant vote and all sorts
02:23of other protections built in.
02:25With Tesla, it's a little more tenuous.
02:27Including his restricted stock units, he has a stake of a little less than 20%.
02:32And while he is a dominant figure, it's definitely not as cemented as it is at SpaceX.
02:37So from his perspective, the cheaper Tesla becomes relative to SpaceX, the easier it is for him
02:44to effectuate a merger and control more of the resulting entity.
02:48Is it great for society to have the world's first trillionaire running all of those businesses
02:54under his own iron grip?
02:56I'll leave that to you to decide.
Comments