Musk’s Public Backing of SpaceX-Tesla Merger Rattles Insiders, Could Delay Deal by Weeks

Elon Musk’s public endorsement this week of a possible $3.5 trillion merger between SpaceX and Tesla has rattled some people involved in the talks, who worry his comments could invite tougher shareholder scrutiny and set the process back by several weeks, according to a person with direct knowledge of the discussions.

Reuters reported the backlash on Thursday, the first account of how Musk’s remarks on Tuesday’s SpaceX earnings call landed inside the negotiations. The disclosure created a “mess” for the process, the person said, because it raised questions about how well Tesla shareholders’ interests would be represented while independent directors evaluate the deal.

On the call, Musk called a merger “a good idea” and said there was “a lot of merit to combining the companies.” He said both companies had formed special committees of independent directors to study a deal, set up at shareholders’ request, and that he could not take part because of a conflict of interest. Advisers are also in contact with his lawyers to make sure he stays recused, according to the person familiar with the talks.

The talks are at an early stage, three people familiar with the matter said, and the parties have hired advisers. SpaceX approached Tesla in recent weeks, one person said, and the companies have discussed structures including a SpaceX acquisition of Tesla or a merger under a newly formed holding company. Different forms of consideration are on the table, including an all-stock deal. These details had not been reported before.

A deal shaped by the SolarCity fight

The unease reflects parallels some participants see with Tesla’s 2016 acquisition of SolarCity, which triggered years of shareholder litigation over Musk’s role. Musk owned about 22 percent of each company at the time; shareholders argued his involvement undermined the deal’s fairness even after a Delaware court upheld it. Tesla directors eventually settled the allegations for $60 million.

Eric Talley, a law professor at Columbia University, told Reuters a merger could help shareholders by ending Musk’s split time between the two companies, but said legal challenges would be hard to predict because Tesla is now incorporated in Texas rather than Delaware. “The Texas thing is a wild card. No one knows how Texas deals with cases like this because Texas never dealt with cases like this,” Talley said. “Who’s going to get the better side of this deal? And that’s usually what gives rise to litigation.”

Musk owns nearly a fifth of Tesla and just under half of SpaceX, and analysts have said a combination would give him control of the merged company.

What the numbers show

The remarks came after SpaceX reported third-quarter results that beat expectations: revenue of $14.6 billion, up 161 percent from a year earlier, driven by its Starlink satellite-internet business and a “Super Intelligence” segment leasing data center capacity, according to the company. Net income was $4.4 billion, a swing into profit after two straight quarters of losses. SpaceX shares rose more than 8 percent on Wednesday; Tesla shares gained more than 2 percent.

Musk’s stated reason for the tie-up is the overlap in the two companies’ work on artificial intelligence, chip design and robotics. “There’s a lot to be gained from cooperating on developing superintelligence software, chip design, the Terafab obviously, robotics, mass-to-orbit with the Starmind constellation, connectivity,” he said on the call. Any deal would need the backing of holders of more than half of Tesla’s outstanding shares, a bar Musk called high.

According to Bloomberg, the companies aim to reach a merger agreement in the first half of 2027. A tie-up would be the largest corporate deal in history, surpassing SpaceX’s acquisition of the xAI artificial intelligence lab earlier this year. Reuters noted it would face scrutiny from regulators worldwide, given Tesla’s business in China and SpaceX’s work in American defense and AI.

Tesla, SpaceX and Musk did not respond to requests for comment, Reuters said.

Reporting based on coverage by Reuters, CNN and Bloomberg.