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Elon Musk thinks it’s a “good idea” to create a holding company on top of Tesla, SpaceX, Neuralink and The Boring Company – at least, that’s what the billionaire CEO said in response to the idea on Twitter. Such a holding company might be known simply as “X,” suggested longtime Tesla shareholder Dave Lee, in a nod to Musk’s ownership of “X.com” at the era of PayPal.
Musk notoriously welcomes changes, big and small, in his businesses in the public square of Twitter. In 2018, he even suggested such a big (and largely unfounded) one – taking Tesla privately using “guaranteed funding” from Saudi Arabia – that it ended up in court.
But the idea here is not so far from the realm of possibilities. Just five years ago, Google surprisingly announced a similar reshuffle, creating the holding company Alphabet and splitting some of its biggest and boldest ventures into their own ventures alongside the search giant, but still under this new umbrella.
If Musk is entertaining something similar after browsing Twitter, let’s think about what that would look like.
Repeating alphabet
The easiest way for Musk to create X might be to roughly follow this Alphabet pattern. The big difference is that SpaceX, Neuralink, and The Boring Company are all separate entities that exist outside of Tesla, the group’s only publicly traded company. Let’s start with Tesla, because that’s where most of the action will have to take place.
Here’s the hilarious way of how the Alphabet deal was structured: Google created a wholly owned subsidiary called Alphabet. He created another new wholly owned subsidiary under Alphabet called “Maple Technologies”. He then merged Maple and Google to create a new version of Google which was, you get it, wholly owned by Alphabet.
Easy, right?
As for the shareholders of Google:
Each share of each class of Google shares issued and outstanding immediately before the Alphabet merger will automatically convert into an equivalent corresponding share of the Alphabet share, having the same designations, rights, powers and preferences and the qualifications, limitations and restrictions as the corresponding action. of Google stock being converted. As a result, once the Alphabet merger is completed, the current shareholders of Google will become shareholders of Alphabet. Google shareholders will not recognize any gain or loss for US federal income tax purposes on the conversion of their shares as part of the Alphabet merger.
In other words, Google basically said “stand firm as we change things, and when we’re done, you will now own an alphabet slice of the same value.”
The same could be done with Tesla. Create a Tesla subsidiary called “X”, create a merger entity below this, then combine the merger entity with Tesla. Tesla’s shareholders turn into equivalent shareholders of X, deal concluded.
Well, not so fast. X would then have to integrate the three other private companies. Instead of being able to just mix them up, like Google has done with companies like Nest or Calico, X should probably acquire SpaceX, Neuralink, and The Boring Company.
It shouldn’t be too difficult since Musk is the majority owner of these companies. The problem is more likely to be of a philosophical nature. Tesla’s share price is currently very high as a lot of people believe in the company. But how would people perceive the value of stock X if it included these other trades? Would stock X be subject to the least dramatic fluctuations since the value of the company would be less dependent on Tesla’s performance? Things of this nature.
Combining the four companies under X could help Musk further sell his futuristic vision (making humanity run on sustainable energy, setting up other worlds, etc.). More annoyingly, it could help it consolidate the financial or human resources departments of different companies, an advantage Google seeks with Alphabet.
Okay now, let’s get weird.
Musk buys Tesla
What really Musk doesn’t care about following the alphabet route … a little despises that Tesla is a public company. Here’s what Musk wrote when he tried to take over Tesla privately in 2018:
As a public company, we are subject to fierce fluctuations in our stock prices which can be a major distraction for everyone who works at Tesla, who are all shareholders. Being public also subjects us to the quarterly earnings cycle which puts enormous pressure on Tesla to make decisions that may be good for a given quarter, but not necessarily good for the long term. Finally, as the shortest title in the history of the stock market, being public means that a large number of people are incited to attack the company.
Tesla is in a much better financial situation now, so he doesn’t have to worry so much about the second and third point. But the overall message always follows. Musk prefers to run his businesses with fewer prying eyes. Would it really expose SpaceX, Neuralink, and The Boring Company to the same kinds of pressures by turning them into a public holding company?
Probably not, so how do you solve this?
Tesla is currently the only public company of the three, so … take it private. Yes. Let’s kick off the whole experience guaranteed by the funding again, but forget about trying to sell it to Saudi Arabia or Apple. Let’s get stranger.
Musk is now the second richest man in the world, with a current value of around $ 140 billion. He probably can’t find all the money it would take to buy Tesla back at its current valuation north of $ 600 billion – especially since half of its shares in Tesla are already pledged as collateral. and the board of directors of the company limited him to borrowing only 25% of the value of the additional shares. It’s also unclear how many of its SpaceX shares are pledged as collateral. But using his stake in the four companies as a loan base, he could be seen taking a pretty big bite out of that $ 600 billion prize.
He would still need serious partners to join him in buying Tesla. Maybe billionaire and Tesla board member Larry Ellison? It seems like the least Ellison could do after Musk brought her into the fold following the secure funding debacle, and turned what was a modest investment into what is now several billion dollars.
Musk appears to like Tesla’s most loyal shareholders, to the point that he tried to promise that they would still own part of the company when the privatization deal failed in 2018 – an idea that confused experts – so maybe he could find a way for them to be involved as well. Whatever consortium Musk creates, it could just replace X, acquire Tesla, and then bring in the other companies.
SPAC X
Musk creates one of the Special Purpose Acquisition Companies, or SPACs, that have been so hot this year and calls it X. He starts it with a lot of his own money (likely leveraged stocks of Tesla and SpaceX) and the share price immediately skyrockets once it starts trading, because a) it’s a SPAC and that’s how things work now, apparently, b) its existence as a vehicle of brute force capitalism excites the masses, and c) it is Elon Musk. SPAC X becomes a blank check monster, he uses it to buy Tesla and the other companies,
Mars Street
Dissatisfied with simply theorizing what the laws on Mars should be, Musk creates the first Mars Stock Exchange. He models it after land-based exchanges, but with adjustments to reduce some of its less favorite aspects (like quarterly reporting rules or that pesky Securities and Exchange Commission). No one really knows if it’s legal or “real”, but then again, the Outer Space Treaty didn’t really take long on financial regulation, did it?
Bitcoin
Musk reveals that he is the creator of Bitcoin Satoshi Nakamoto, sells all of his coins, and buys Tesla.
As you can see, Musk has a few options if he really wants to create the kind of global conglomerate that only appears in the movies. It may be long, but it’s kind of his whole thing. No wonder he thinks it’s a good idea.
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