Elon Musk’s public endorsement this week of a potential US$3.5 trillion merger between SpaceX and Tesla has rattled some insiders involved in the discussions, who worry his comments could invite shareholder scrutiny and delay the process by several weeks, a person with direct knowledge of the talks said.
The disclosure created a “mess” for the process, as it could lead to questions about how well Tesla shareholders’ interests would be represented, the person said.
The concerns reflect similarities some participants see with Tesla’s 2016 acquisition of SolarCity, which sparked years of litigation over Musk’s role in the deal.
A Tesla sign is pictured at a dealership in Santa Clarita, California, on Oct. 21.
Photo: AFP
Musk, who serves as chief executive officer of SpaceX and Tesla, and owns significant stakes in each company, this week told investors that the two companies were examining what would be the largest corporate transaction in history and revealed that both had formed special committees to evaluate it.
The parties have hired advisers, but discussions are at an early stage, three sources familiar with the matter said.
SpaceX approached Tesla in recent weeks and the companies have been discussing a range of transaction structures, including a SpaceX acquisition of Tesla or a merger under a newly formed holding company, the person familiar with the matter said.
They are weighing different forms of merger consideration, including an all-stock deal, the person said.
In related-party transactions such as a SpaceX-Tesla merger, independent board members typically oversee the process to safeguard public shareholders’ interests.
That issue loomed large in Tesla’s 2016 acquisition of SolarCity, which triggered years of litigation after shareholders alleged the world’s richest man had influenced the process to bail out his investment in the struggling rooftop solar company.
At the time, Musk owned about 22 percent of both Tesla and SolarCity, which was founded by his cousins.
Shareholders argued that Musk’s involvement and public support undermined the deal’s fairness.
Central to the case were claims that despite his minority stake, Musk was a controlling shareholder of Tesla due to his ties to board members and domineering style.
The Delaware Supreme Court later said that plaintiffs’ contention of the absence of an independent committee, together with “certain other facts concerning Musk’s involvement in and public support for the transaction,” warranted the finding of unfair dealing.
The courts ultimately upheld the acquisition as fair, although it took several years for the case to be resolved and Tesla directors settled allegations for US$60 million.
Musk owns nearly one-fifth of Tesla and just under half of SpaceX, and analysts have said a merger would give him control of the combined entity.
On Tuesday’s call with investors, Musk said that as a conflicted party, he cannot be part of the discussions of the special committees.
Advisers are also in contact with his lawyers to ensure Musk is recused from the merger discussions, the source familiar with the talks said.