Musk’s support for potential $3.5 trillion SpaceX-Tesla deal raises concerns among insiders

Washington, United States. Elon Musk’s public support this week for a possible $3.5 trillion combination of SpaceX and Tesla has unsettled some people involved in negotiations, according to a person directly familiar with the discussions. They fear his remarks could intensify scrutiny from shareholders and set the process back by several weeks, the person said.

Committees and advisers assess options

Musk, CEO of both companies and a substantial shareholder in each, told investors this week that SpaceX SPCX.O and Tesla TSLA.O were considering a transaction that would rank as the biggest corporate deal ever. He also disclosed that each company had established a special committee to assess the proposal.

Three sources familiar with the matter said advisers had been retained, although negotiations remained preliminary. According to the person familiar with the discussions, SpaceX contacted Tesla in recent weeks.

Options under consideration include SpaceX buying Tesla or combining both businesses beneath a new holding company, that person said. The parties are also considering different ways to compensate shareholders, with an entirely share-based transaction among the possibilities.

The concerns prompted by Musk’s remarks, along with these details of the negotiations, had not previously been reported. Requests for comment went unanswered by Tesla, SpaceX and Musk.

Questions over shareholder protections

The person with direct knowledge said Musk’s disclosure had complicated the process by potentially raising questions over whether Tesla shareholders would receive adequate representation. Some participants see parallels with Tesla’s purchase of SolarCity in 2016, which led to prolonged litigation concerning Musk’s involvement.

Transactions between related parties, such as the proposed SpaceX-Tesla combination, are generally supervised by independent directors to protect the interests of public shareholders.

Those protections became a major issue in the SolarCity case. Shareholders alleged that Musk, the world’s wealthiest person, had shaped the acquisition process to rescue his investment in the financially troubled rooftop solar business.

At the time, Musk held approximately 22% of each company. His cousins had founded SolarCity.

Earlier litigation examined Musk’s influence

Shareholders maintained that Musk’s participation and public advocacy compromised the SolarCity transaction’s fairness. A central argument was that his relationships with directors and domineering management style made him Tesla’s controlling shareholder, even though he held only a minority stake.

The Delaware Supreme Court subsequently said the plaintiffs’ argument that no independent committee existed, combined with “certain other facts concerning Musk’s involvement in and public support for the transaction,” justified a finding that the process involved unfair dealing.

Courts nevertheless ultimately determined that the acquisition was fair and upheld it. Resolving the litigation took several years, while Tesla directors settled allegations against them for $60 million.