Key Points
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Analysts and investors widely believe a SpaceX-Tesla merger will happen in the near future.
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Musk leads both companies and has been careful about what he’s said about a possible merger.
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While Musk has hinted at the benefits of the businesses coming together, he doesn’t want to run into trouble with regulators.
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Speculation has been ramping up of a potential merger ahead involving Space Exploration Technologies Corp (NASDAQ:SPCX) and Tesla (NASDAQ:TSLA). Elon Musk runs both companies, and they sometimes work on the same projects. For many investors, it’s effectively a question of when, rather than if, a merger will take place.
So why hasn’t Musk confirmed that it will end up happening? The simple reason is that he can’t, without fear of running into trouble with regulators, stating recently that, “this is definitely kind of a question where I feel like I’m tap dancing through a minefield… but I do think there’s a lot of merit to combining the companies.”
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Special committees to look at a possible merger between the companies
Musk is careful about what she says regarding a merger between the two companies, but it’s clear that’s the direction SpaceX and electric vehicle maker Tesla are moving toward. Musk says that special committees have even been formed to consider a possible merger between the two businesses, but he cannot be part of them, calling himself a “conflicted party” in the matter.
Ultimately, it will be the shareholders who must approve any such deal. But with room for significant synergies, the combined business enabling Musk to better focus his efforts on a single entity, and potentially easier access to investors and capital, it may not be all that difficult for shareholders to see value in the deal.
The only reason I think Musk will not openly push for a deal is to avoid appearing to influence shareholders. But with so much potential overlap in their operations and Musk running both businesses, it would be hard to imagine a scenario where he wouldn’t want to merge the companies at some point.
A merger may happen soon, but investors shouldn’t expect a surge for either stock
Some analysts have speculated that a merger may take place before the end of the year. An announcement could occur in the near future, but the process is likely to unfold over a much longer time frame, as regulators will likely want to take their time reviewing such a massive merger.
Investors, however, should temper their expectations as to what that might mean for either stock, since both are already highly valued, with a merger involving SpaceX and Tesla already highly expected and thus priced into their respective valuations; the announcement of a merger may not be enough to send either stock much higher in the short term.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
