If SpaceX (SPCX.US) and SpaceX (TSLA.US) merge, Musk's net worth could skyrocket by 110 billion US dollars
The Zhitong Finance App learned that Elon Musk confirmed in the SpaceX (SPCX.US) performance conference call yesterday that SpaceX and Tesla (TSLA.US) have set up separate special committees to discuss potential mergers. The news quickly became the focus of the market, and his “merger is a good idea” response publicly supported the idea that could spawn one of the world's most valuable companies.
Although electric vehicle manufacturer Tesla and rocket company SpaceX were once viewed as two companies with basically independent businesses, the business boundaries between the two companies have gradually blurred as Musk continues to expand fields such as artificial intelligence (AI), robotics, advanced manufacturing, satellite communications, and computing infrastructure — including data centers on Earth and data centers that may be deployed in orbit in the future.
Musk said, “I really think there is great value in merging the two companies because we are basically already in the super-smart singularity phase. Cooperation can bring huge benefits in terms of super-intelligent software development, chip design, Terafab projects, robotics, large-scale delivery of materials into orbit using the Starmind constellation (orbital data center), and connectivity capabilities.”
And according to the specific details of the merger, Musk himself may have obtained huge benefits from it. According to the Bloomberg Billionaires Index, if the two companies merge, it is possible to increase Musk's wealth by more than 110 billion US dollars by speeding up the ownership of Tesla shares. According to the original plan, these shares will not be owned until 2028. Furthermore, according to Tesla's valuation in the deal, Musk's 2025 compensation plan may also unlock billions of dollars in additional revenue for it without Tesla reaching the operating milestones originally required to trigger this compensation.
On Wednesday, Musk's wealth soared by more than $60 billion in a day, driven by news of the two companies' merger negotiations and SpaceX's strong quarterly results.
An ambitious goal
Musk, 55, received one of the largest salary plans in Tesla's history last year. If it were to be fully implemented, the value could be close to 1 trillion US dollars. The program lasts for 10 years and comes with ambitious performance goals, including the delivery of 1 million Optimus humanoid robots, putting 1 million Robotaxis into commercial operation, and 20 million vehicles. At the same time, the plan also set market capitalization targets ranging from 2 trillion US dollars to 8.5 trillion US dollars. Currently, none of the operating and market capitalization milestones have been achieved.
Like most executive compensation plans, Musk's compensation plan also includes a “change of control” clause. If Tesla's current shareholders get less than 50% of the voting rights of the surviving company or its parent company after the merger, then the merger may trigger these clauses. Given that SpaceX's current valuation is about one-third higher than Tesla, such an outcome is entirely likely, but ultimately it will still depend on the exact structure of the deal.
If the relevant provisions are triggered, then the above operating milestones will no longer apply, and the final remuneration Musk can receive will be calculated based on the Tesla market valuation in the transaction. This means that if Tesla were to be valued at $2 trillion in the merger — the first market capitalization milestone — Musk would unlock stocks with a net worth over $6 billion. Currently, Tesla's market capitalization is around $1.5 trillion.
Jason Schloetzer, associate professor of accounting at Georgetown University's McDonough School of Business, said, “Whether these control change clauses will be triggered on a technical level will depend on how the deal is designed, but shareholders on both sides should assume that Musk's incentive mechanism tends to drive a higher valuation of the deal and should pay attention to how the Special Committee will handle this issue.”
According to the current salary plan, Musk cannot sell these reward shares for five years, but there are also exceptions in the event of a change of control.
Accelerated belonging
For Musk, the greater potential benefits may come from the accelerated attribution of his 2018 Tesla compensation rewards.
Musk's initial “lunar landing” compensation plan granted it about 304 million options, but these options required Tesla to reach specific market capitalization and operating milestones to be realized, and all of these goals were eventually achieved. Musk and Tesla's board of directors negotiated an implementation plan earlier this year to enable him to exercise these options through netting, thereby reducing his cash requirements to pay taxes and exercise costs. In exchange, the approximately 286 million shares he acquired will not be vested until January 2028, as an additional incentive to stay with the company.
However, in the event of a change in control, these shares will be immediately vested. Additionally, after vesting, these shares are subject to a five-year holding period. However, the agreement provides for some exceptions to change of control events, which may also allow Musk to sell these shares ahead of time. These shares are currently worth more than $110 billion, and since they are not yet owned, they are not included in the Bloomberg Wealth Index's calculation of Musk's current net worth.
SpaceX salary
Musk also has two salary plans at SpaceX, and these two plans are less likely to be affected by this potential deal.
The rocket and artificial intelligence company granted Musk up to 1.3 billion restricted shares, and its fulfillment depends on a series of market capitalization milestones and operating milestones related to the computing power to establish a human colony on Mars and its planned space data center.
Market capitalization milestones may be adjusted by the board of directors to reflect any merger or acquisition transaction. The board of directors made such adjustments after SpaceX acquired Musk's artificial intelligence startup XAI. This suggests that if Tesla merges with SpaceX, the board of directors may adjust these goals again to avoid a deal that formally makes these goals easier to achieve.
However, given that most of Musk's Tesla salary plans may be confiscated, and there are currently no clear goals to link Musk's salary to Tesla's traditional business line, the SpaceX board of directors may be under pressure to design another compensation plan for the founder.
Jason Schloetzer said that considering that both companies have provided extremely large equity compensation to Musk in the past, this “seems to have been a matter of course”, “after the merger, the company's board of directors will face an increasingly familiar argument that new rewards need to be provided to ensure that Musk continues to be fully committed.”