Tesla and SpaceX have both formed special committees within their corporate boards to explore the possibility of merging the two companies according to Elon Musk, who is CEO of both companies.
The merger could have big consequences not just for Tesla and SpaceX shareholders, but could dilute the retirement savings of everyone with exposure to major stock indices.
SpaceX held its quarterly earnings call today, just a few months after going public for the first time.
And for us in the electric car world, the big and unsurprising news was that Tesla and SpaceX are now formally reviewing the possibility of merging the companies together.
The possibility of a merger has been rumored for a long time. Musk has long complained of the need to respond to shareholders’ concerns as CEO of Tesla. It is odd, then, for him to take SpaceX public when he has complained for more than a decade about Tesla being public and having to respond to shareholders.
Musk wants more control
The problem, as Musk sees it, is that he does not have enough control of Tesla. Over the years, his ownership percentage had dwindled as Tesla sold stock in offerings or granted stock to employees, though today after the restoration of his illegal pay package, his ownership percentage runs around 22%.
This means he can’t ram anything through that he wants, he has to build consensus around his ideas. (That said, shareholders have proven themselves happy to oblige any ridiculous idea that he proposes to them…)
But that’s not enough for Musk. He wants total control of the company, and he’ll try any financial shenanigans to get it. He’s gone so far as to market this idea by saying that he needs $1 trillion so he can control a robot army.
If he gets that most recent pay package, a huge chunk of shares will be created out of thin air, going right into the pocket of the one person on the planet who needs them the least, and diluting the voting power and value of every other person’s shares.
A marketing plan gets him there
So, he cooked up a plan. Sell the most ridiculous CEO pay package ever devised to Tesla shareholders, making big claims that the stock will only be delivered if Tesla manages to deliver a million robots, a million robotaxis, and various other operational milestones that would surely indicate Tesla’s success as a company.
Then do the same with SpaceX, promising to put a million colonists on Mars (which will not happen). Make sure to give yourself super-voting shares before SpaceX goes public, so you don’t have to worry about ever listening to anyone else.
Let these high-profile targets grab headlines, and trick shareholders who don’t know any better into voting for these pay packages, thinking they’re safe because even if their shares are diluted by these massive stock grants, they’ll just end up with a slightly smaller piece of a much larger pie. It’s a win-win, right?
Well… unless we include a provision in the pay package that says the shares are automatically delivered in the case of a merger. That’s right, if SpaceX and Tesla merge, then all the talk about robots and Mars colonies is irrelevant. Musk gets his stock regardless of any operational milestones.
He gets stock, you get diluted, and you didn’t even see a single robot delivered.
And so, after only the second quarterly report ever presented by SpaceX, the companies are already exploring the possibility of merging.
Musk said today during SpaceX’s earnings call that each company has formed a “special committee” of “independent board members” (and those quotes around the word “independent” are doing heavy lifting) which are reviewing the possibility of a merger.
This does not mean that the merger is a certain thing. First, the “independent” board members need to agree that it’s a good idea – but, given that Tesla’s board has always sought Musk’s interests and not those of the company, it certainly seems that if Musk thinks it’s a good idea, the committee probably will too.
After all, the special committee on pay signed off on Musk’s ridiculous trillion-dollar pay package, despite that all that package did was attach the company to the very anchor that is dragging it down. That package would benefit Musk at the cost of all other shareholders and the company’s own operations, so the board’s independence is called into question if that’s the kind of idea it signs off on.
Musk is not officially allowed to be involved in these discussions, nor are boardmembers not deemed “independent,” like his brother, Kimbal Musk. But Elon has made it clear that he wants this to happen. He did so again today, when he said that he thinks a merger would be a good idea, because “we are pretty much in the superintelligence singularity” (notably, we are not, and neither would that be particularly relevant to an auto manufacturer).
So, a board sign-off seems reasonably certain given what Musk has publicly directed Tesla’s captured board to do. After that, shareholders of both companies need to approve the move.
For SpaceX this is an easy one – Musk controls more than 50% of voting shares, and therefore the company will approve of the merger. He set it up this way, and the merger would give him more money and more control, so he’s going to vote for it.
For Tesla, the vote could theoretically fail to pass. The company would need a vote of 50% of all outstanding shares, not just 50% of shareholders who turn out to cast their votes.
For this reason, Tesla has already prepared a questionable “auto-vote” procedure. This would allow shareholders to set an instruction to automatically vote all of their shares with board recommendations, no matter how bad those board recommendations are to the shareholders’ own interests.
This is a big deal for Tesla, because Tesla has a larger percentage of its shares owned by retail shareholders than most companies, and retail shareholders tend to turn out in low percentages. So this is a way to encourage more retail votes – and of course, the only option is to auto-vote with the board, not to auto-vote against it.
So the stage has been set, and today, the companies took the first formal step towards making this merger happen.
This wouldn’t be the first merger that Musk has tricked shareholders into.
Back in 2016, Musk went on stage to demonstrate slick-looking Tesla solar roof tiles, which would be more durable than a regular roof and generate energy along the way, meaning they’d have a lower total cost of ownership.
Those solar roof tiles never made it onto the market in any significant numbers, and Tesla eventually killed the product in August of this year.
But they served their purpose – they served to sell Tesla shareholders on the idea of purchasing SolarCity, a solar startup founded by Elon Musk’s cousins, Lyndon and Peter Rive. It also allowed billions of debt from SolarCity to be absorbed by Tesla. (Hey, that kind of sounds like when Musk bought twitter for $30 billion more than it was worth, funded it with debt, shuffled that debt into SpaceX, then IPOed to offload the debt onto the public)
And now, both Tesla and SpaceX are selling their shareholders on the idea of a merger, just a week after Musk hosted a ridiculous product demo of a product that has been delayed 11 years after it was first announced, and is now being shown off in a form that will never be legal to drive on public roads. Sounds a little familiar, doesn’t it?
All of this seems like it would only be of interest to Tesla and SpaceX shareholders, but the fact of the matter is, that means it’s of interest to all of us.
The companies are two of the largest in America by market cap, which means they are included in major stock indices. And many retirement funds thus hold exposure to Tesla, and have for years.
SpaceX is a different story, since it’s a brand-new stock. Given that it just IPOed a few months ago, it wouldn’t normally be added to indices for another year. But Musk got the rules changed so that SpaceX would be included in the Nasdaq 100 index just days after IPO, which in turn means it might already be in your retirement portfolio.
So both companies are in a lot of retirement plans, and the value of those shares will be diluted by giving a bigger share of each company to Musk if the two companies merge.
And thus, everyone with a retirement account would be forced to contribute money to this non-performing “performance” award for a guy whose main interest, if you read his output on the platform he treats as a full-time job, is to use his unearned wealth to impose white supremacy and do things that are, and I quote one Elon Musk on this one: “not good for America or the world.”
Oh, he’s also suing to defend nude deepfakes made without consent. Hope you like your retirement money being used for that.
We wrote last October that “Elon Musk’s $1 trillion pay day gets more ridiculous the more you look into it,” and, well, it looks like the vote wasn’t the end of it.
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