While SpaceX is often shorthand for Elon Musk's ownership, the reality is more complex, with minority shareholders holding significant stakes. A recent merger announcement has sparked debate over whether this move benefits all investors equally.
Elon Musk's Ambitious Vision for SpaceX and xAI
Elon Musk has unveiled a bold plan to merge SpaceX, the rocket company, with xAI, an artificial intelligence developer, in a deal valued at an astonishing $1.25 trillion (£910 billion). This transaction positions the combined entity as potentially the most valuable private company in history ahead of a planned stock market debut in June.
Musk describes this merger as creating "the most ambitious, vertically-integrated innovation engine on (and off) Earth", integrating AI, rockets, space-based internet, and communications technologies. To his supporters, this represents another visionary leap forward, promising to accelerate humanity's future through cutting-edge advancements.
Minority Shareholders' Concerns Over the Deal
However, for SpaceX's minority shareholders, this all-share transaction appears less like a strategic masterstroke and more like an immediate bailout for loss-making xAI. Critics argue the deal was conducted with minimal scrutiny of valuations and little attempt to seek input from these investors.
It's crucial to remember that Musk owns an estimated 42% of SpaceX, not the entire company. Outside shareholders have been involved for years, including through UK investment trusts like Scottish Mortgage and Edinburgh Worldwide, which hold SpaceX as their largest investment. These end-investors may question the wisdom of merging with xAI, a cash-burning operation that comes with the baggage of X, the social media platform embroiled in controversies.
The Strategic Rationale and Its Flaws
Musk justifies the merger by arguing that the AI battleground is shifting to space, citing unsustainable terrestrial energy demands for AI. While this analysis may have merit, it doesn't necessarily mandate combining the two entities under one roof. Business could be conducted at arm's length, or a more detailed case could be made with transparent valuations.
The reported valuations—$1 trillion for SpaceX and $250 billion for xAI—raise eyebrows. SpaceX is a profitable market leader with $16 billion in annual revenue, poised for a $1 trillion IPO on its own merits. In contrast, xAI is a startup with less than $1 billion in revenue, facing massive investment needs and stiff competition from giants like Google and Anthropic.
Impact on UK Investment Trusts and Outside Backers
For UK investment trusts with heavy exposure to SpaceX, this deal presents a significant shift. While Musk benefits from being on both sides of the transaction, outside investors like those in Scottish Mortgage and Edinburgh Worldwide may feel they're being taken for a ride, with the troublesome X platform effectively shunted onto SpaceX's long-term backers without their consent.
Despite this, it's worth noting that these investors have still reaped substantial returns from SpaceX's rocket ventures. The concern is whether this latest manoeuvre prioritises rescuing xAI over maximising value for all shareholders.
Looking Ahead to the Public Listing
As the expanded SpaceX prepares for its public listing, the details of this merger may be overshadowed by Musk-mania and market excitement. Yet, the transaction underscores ongoing tensions between visionary leadership and shareholder accountability in high-stakes tech ventures.
