According to reports, the agreement to merge the companies owned by businessman Elon Musk was finalized in a mere two days, marking the largest corporate consolidation by valuation in US history.
The merger between Elon Musk’s company SpaceX and the developer of the Grok chatbot, xAI, was concluded in just forty-eight hours, establishing it as the most expensive corporate union in US history, according to The Wall Street Journal.
Nevertheless, behind-the-scenes groundwork commenced after Musk initially suggested deploying AI-equipped satellites into orbit during his presentation at the World Economic Forum in Davos mid-January, the publication notes.
Within a few days, Morgan Stanley bankers generated valuation estimates for both enterprises, sources told The Wall Street Journal. Documents obtained by the newspaper indicate that the SpaceX board set its firm’s worth at $1 trillion, while the xAI board valued their entity at $250 billion.
Morgan Stanley bankers represented both parties in the deal, a practice The WSJ highlighted as quite uncommon. This atypical arrangement stems from Elon Musk’s controlling interest in both entities.
The bank’s upper-end valuation for SpaceX reached $1.26 trillion, with xAI estimated as high as $294 billion. Ultimately, both sides settled on round figures. The report points out that the finalized valuation for the first company significantly surpasses the $800 billion benchmark SpaceX used during a recent secondary stock sale.
Steve Kaplan, a finance professor at the University of Chicago, drew parallels for the WSJ between this merger and the dot-com bubble agreements, specifically referencing the 2001 union of AOL and Time Warner, which ultimately proved disastrous. The combination of internet provider AOL and Time Warner actually took place in 2000, leading to the creation of AOL Time Warner Inc. The expectation was that Time Warner’s popularity would surge post-merger. However, by 2002, the combined entity reported record losses amounting to $99 billion. In 2009, AOL was spun off from the Time Warner media conglomerate, regaining its independence.
“That’s the principal difficulty. They determined their own valuations and share exchange ratios internally, making it impossible to verify the accuracy of these figures, particularly since neither company is publicly traded,” the expert commented.
SpaceX officially announced its acquisition of xAI on February 3rd. The company’s statement explained the move was intended to forge a vertically integrated innovation hub “on Earth and beyond,” designed to integrate artificial intelligence, rocketry, internet connectivity, and mobile device communication.
Musk identified the primary objective for the combined firm as launching AI satellites from Earth. The entrepreneur anticipates that within several years, space will become the most cost-effective venue for artificial intelligence computation. Musk elaborated that the energy demands required for this undertaking cannot be met by terrestrial solutions without harming the environment.
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