Tesla shareholders—not Musk—can block a $3.5 trillion SpaceX deal

By Grace Kim

Fortune calculated that a potential SpaceX–Tesla merger would create a roughly $3.5 trillion company at Wednesday’s market values, the largest corporate tie-up in history. The decisive constraint is Tesla’s shareholder threshold. Musk said approval requires the support of holders of a majority of all outstanding shares, not just a majority of shares voted.

What has the board review begun?

Independent directors at SpaceX and Tesla have formed special committees to explore a merger, Fortune reported. Earlier in the week, SpaceX delivered a blowout quarter and posted its first profit as a public company.

On Tuesday’s SpaceX earnings call, Musk, CEO of both companies, said the proposal had “a lot of merit.”

Musk described his large holdings in the two companies as making him a “conflicted party.” That status prevents him from joining either committee.

Musk said: “It’s an odd kabuki dance where two groups of people are talking and I can’t be in the conversation.” He added: “This is definitely the kind of question where I feel like I’m tap dancing through a minefield.”

The formal review now rests with independent directors on both sides, not with Musk at the table.

Can Tesla clear the shareholder hurdle?

Musk controls about 85% of SpaceX’s voting power, compared with roughly 20% at Tesla, Fortune reported.

For Tesla, approval requires support from holders of a majority of all outstanding shares—not merely a majority of shares voted. Musk said shares that remain unvoted would have the same effect as votes against the merger. He called the requirement “quite a high hurdle.”

Luke Rahbari of Rational Equity Armor Fund compared the process to “herding cats.” He added that “it’s going to take some time and money.”

In plain terms, Tesla must secure consent from holders of more than half of its entire outstanding share base.

What premium could win support?

Nejat Seyhun, a finance professor at the University of Michigan Ross School of Business, said the valuation and any premium offered would matter.

“At a zero premium, probably there would be some resistance, but at 20%, 30% or 40% premium I don’t think there would be any,” Seyhun told Fortune.

Tesla announced quarterly earnings late Wednesday. The automaker beat on the top and bottom line, Fortune reported, while revenue fell from a year earlier amid weakness in its core automotive business.

On Seyhun’s assessment, a 20% to 40% premium could remove what he sees as likely resistance at no premium.

Why do experts expect a deal eventually?

Luke Rahbari and Nejat Seyhun both expect a merger eventually and believe it would benefit both companies, Fortune reported.

A combination could pool their engineers, technology and research budgets while eliminating overlapping spending, especially as both companies push further into artificial intelligence.

Rahbari said, “The lines are getting kind of muddled already,” pointing to shared technology and data.

One connection already exists: Tesla uses SpaceX’s Starlink at some of the company’s Supercharger stations. Rahbari described that partnership as already “beneficial for both companies.”

Shared technology and overlapping AI spending form the practical case for bringing the companies together.

Is the merger certain?

Musk rejected that certainty on Tuesday’s earnings call. He told analysts: “Some people out there assume that a SpaceX and Tesla merger is a certainty, and I think that would be overstating it.”

Investors still appeared optimistic on Wednesday. SpaceX shares jumped nearly 8%, their best single-session performance since August, while Tesla gained 3.4%, Fortune reported.

The share reaction showed that investors will trade on merger potential even as Musk rejects the word “certainty.”

What has to happen next?

The two special committees must advance the review, and Tesla must secure support from holders of a majority of all outstanding shares. Until both hurdles clear, the roughly $3.5 trillion combination remains under committee review rather than becoming a completed transaction.

For investors, the market-value prize still depends on independent directors and holders of more than half of Tesla’s shares.