Piper Sandler Sees a Tesla-SpaceX Merger as Likely, With Musk at 70%

Image: SpaceX

Piper Sandler analyst Alexander Potter now says a Tesla-SpaceX merger proposal is “likelier than not,” in a client note summarized by Investing.com, arguing that in most scenarios Elon Musk would keep more than 70% voting control of any combined company.

Client interest deepened after Musk confirmed on October 20 that both companies had formed special committees of independent directors, Potter said, according to the write-up. Piper is still unsure what terms any deal might carry, or whether one will be proposed at all.

“Given the above, we think it’s likelier than not that a merger will be proposed,” Potter wrote. The firm rates Tesla Overweight and SpaceX Neutral.

Potter’s model focuses on three variables: the buyout premium, synergies, and the discount for deal risk. The most important, he said, is any premium SpaceX pays for Tesla and the implied exchange ratio. A 30% premium would not mean 30% upside for Tesla shares, because SpaceX stock would be the currency and would reprice immediately, with any initial gain also discounted for approval odds.

Many believable scenarios imply an initial re-pricing of less than plus or minus 15%, the note added, leaving Tesla shareholders outside Musk likely to push for a favorable exchange ratio so they remain the largest ownership group in a combined company. “Regardless, in most scenarios, Musk would have >70% voting control of any new entity,” Potter said.

Wall Street has been modeling the combination for weeks, including RBC’s $480-a-share SpaceX-buys-Tesla case and a Barclays upgrade that leaned on merger talk. Musk has called a deal a good idea while stressing he is a conflicted party who cannot sit in the committee talks, and both sides have said no terms are agreed.

Would a sub-15% announcement move be enough for you if the exchange ratio kept Musk above 70% voting control?