Investing.com — Piper Sandler revealed in a client note that it has built a model to assess how Tesla and SpaceX shares might react to a potential all-stock merger.
The firm said client interest in a deal has deepened since Elon Musk confirmed on Oct. 20 that both companies had formed special committees.
Analyst Alexander Potter noted Piper is unsure what terms any merger might carry, or whether a deal will be proposed at all. However, he identified the three most critical variables as the buyout premium, synergies and the discount for deal risk.
The most important factor is any premium SpaceX pays for Tesla and the implied exchange ratio. Potter noted that a 30% premium would not mean 30% upside for Tesla shares, because SpaceX stock, the currency for the deal, would instantly reprice. Any initial gain would also be discounted based on the likelihood of approval.
Piper believes a merger is more likely than not, given that Musk has called it a good idea.
“Given the above, we think it’s likelier than not that a merger will be proposed,” Potter wrote.
However, the firm expects investors to be skeptical that synergies are worth hundreds of billions of dollars. “Many believable scenarios imply initial re-pricing of less than +/-15%,” the analyst added.
With limited upside, Potter said Tesla shareholders may push for a favorable exchange ratio. He expects them, excluding Musk, to need to be the largest ownership group in a combined company.
“Regardless, in most scenarios, Musk would have >70% voting control of any new entity,” the analyst said.
Piper rates Tesla Overweight and SpaceX Neutral.
Original Article
Analyst models potential market reaction to a SpaceX-Tesla all-stock merger
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