Tesla and SpaceX form committees to explore possible merger

Tesla and SpaceX have created independent special committees to explore a possible merger, Elon Musk said during SpaceX’s third-quarter earnings call. The Tesla SpaceX merger process remains preliminary: Musk said the committees have not settled on terms and that there is no assurance a transaction will happen, according to Fortune and the Los Angeles Times.

Musk, chief executive of both companies, said he is not taking part in the committee discussions because he is a conflicted party. The committees were formed at shareholders’ request, Fortune reported.

Have Tesla and SpaceX agreed to a merger?

No. The companies are examining a potential combination through their special committees, but have not announced an agreement, price, structure or timetable. Musk said assuming a merger is certain would go too far, according to Fortune.

Speculation about a tie-up had circulated on Wall Street before the committee process was disclosed. CNBC reported in May that discussion of a possible combination had been growing as SpaceX approached public markets, while Yahoo Finance reported analyst views on potential deal structures earlier this month.

Why is Elon Musk excluded from the talks?

Musk said he cannot participate because his leadership roles at both companies create a conflict of interest. He holds significant stakes in Tesla and SpaceX, according to Fortune, though reports differ on the precise extent of his SpaceX voting control.

Independent directors are handling the exploratory discussions. Musk said a transaction on Tesla’s side would require approval from a majority of all outstanding Tesla shares, which he described as a high threshold.

What does the $3.5 trillion figure mean?

The $3.5 trillion figure is not a proposed purchase price or an agreed valuation. It is Fortune’s estimate of the companies’ combined market value at the cited Tuesday closing prices: about $2 trillion for SpaceX and nearly $1.5 trillion for Tesla.

A deal price, if the committees ultimately negotiate one, would be determined later. Tesla’s latest proxy statement did not include a merger proposal for shareholders to vote on, Fortune reported.

What reasons has Musk given for a combination?

Musk said he sees potential benefits in closer work between the companies on artificial-intelligence software, chip design, robotics and connectivity. He also cited Terafab, a planned chip-manufacturing project that Tesla and SpaceX are developing jointly, according to Fortune.

The companies already have financial ties. Tesla’s proxy disclosed a $2 billion investment in SpaceX, Fortune reported. The Los Angeles Times also reported that Musk said combining the companies could help their work on superintelligence software.

For now, the disclosed development is an independent review of a possible merger rather than a signed transaction. Any agreement would still need terms and the stated Tesla shareholder approval.

This story draws on original reporting from Fortune.