Elon Musk has incredible influence over the companies he leads. And although he already calls himself the “Techno King” at Tesla, he is the true ruler over SpaceX, wielding an unprecedented level of control over one of the world’s most valuable companies.
Mr. Musk’s monarchical control over SpaceX was finally revealed in the company’s IPO filing, made public on Wednesday.
After the IPO, Musk will become SpaceX’s CEO, CTO, and chairman of the board. The company’s current voting rights of 85% will be reduced after the IPO, but they will still be above 50% and will be able to appoint directors as needed. Basically, he can’t be fired.
The company has limits on how shareholders can file legal challenges and will benefit from a much more permissive regulatory regime in its home state of Texas, which Mr. Musk helped create when he vocally moved Tesla’s incorporation from Delaware.
In its filing, SpaceX frankly tells potential investors: “This would limit or eliminate our ability to influence corporate matters and the election of our directors.”
Has more control than Mark
Over the past two decades, tech founders have increased their control over public companies, especially as Google, Meta (then Facebook) and other tech companies went public with dual-class stock.
But Mr. Musk and SpaceX are going further than that, said Ann Lipton, a law professor at the University of Colorado.
In a blog published last Friday, Mr. Lipton argued that Mr. Musk is trying to eliminate the three most powerful levers that shareholders typically have to pressure executives at public companies.
The first is voting. SpaceX has a dual-class structure, with Musk owning 93.6% of the Class B super-voting shares, which are not available to the public in a public offering.
Even though SpaceX is aiming for the largest IPO in history, if SpaceX were to go public, Musk would still control more than 50% of the voting rights. This would make the company a “controlled company” under stock exchange standards, exempting controlled companies from rules requiring independent supervision.
SpaceX said in its IPO filing that public shareholders (who will own Class A shares) “will not enjoy the same protections afforded to shareholders of companies subject to all of Nasdaq’s corporate governance requirements.”
Importantly, Musk’s control of voting rights means he can make any decisions that require shareholder approval. This includes decisions such as mergers and acquisitions. If Musk ultimately wants to merge or acquire Tesla in some way, as many have speculated, he won’t need to convince SpaceX shareholders.
Voting control is the biggest difference in Mr. Musk’s power at SpaceX and Tesla. Musk only has about 20% of the voting power in Tesla, so he has had to put a lot of pressure on the company in recent years, demanding more shares and at one point threatening to exit the company altogether. (Tesla met its obligations last year by creating a $1 trillion compensation package with shareholder approval.)
legal shield
The second lever SpaceX is trying to reduce is its ability to sue.
By incorporating in Texas, SpaceX guaranteed that shareholders could not sue in so-called derivative actions unless they owned at least 3% of the company’s stock. (At a projected valuation of $1.75 trillion, this equates to a position worth approximately $52 billion.)
Derivative lawsuits occur when shareholders sue Tesla’s board on behalf of the company itself, such as when a small shareholder sued Tesla’s board over the $56 billion compensation given to Mr. Musk in 2018.
Additionally, SpaceX included language in its terms that would funnel most litigation either to the new Texas Business Court, which just began operating in 2024, or to mandatory arbitration.
In other words, Lipton told TechCrunch, “Forget it. That’s it. In most cases, there won’t be a lawsuit.”
This didn’t happen until Musk tore Tesla out of Delaware and moved it to Texas, she said.
In fact, Lipton said that until a few years ago, Delaware was increasingly scrutinizing what kind of management company SpaceX had become.
“Having dual-class stock gives you tremendous voting rights, but it also exposes you to greater oversight by the Delaware court system,” she said.
vote with your feet
The last resort to shareholder power that SpaceX has broken, Lipton argued, is the ability to sell stock and exit.
SpaceX successfully lobbied the Nasdaq Stock Exchange to loosen rules governing how and when companies can be added to the Nasdaq 100 index, a group of large-cap stocks that the company touts as “fundamentally sound and innovative.”
This process previously took months, but SpaceX is now expected to be added to the list within weeks.
When companies are added to these indexes, such as the Nasdaq 100 or the S&P 500, large financial institutions (such as 401k providers) automatically buy them.
Therefore, Lipton argues that SpaceX’s stock price will be boosted in the early stages of public trading by the impending inclusion, as traders will want to buy before institutional investors come in and push the price even higher.
“Usually if you can’t vote and you can’t sue, at least you can sell it and get the price down, but that hurts,” Lipton said. “The controller hurts” [of the company]which is a blow to executives who are paid in shares. But now even that is being manipulated. ”
Zhang An, a former Goldman Sachs and JPMorgan executive who is now CEO of tokenized private equity firm Tessera, said he generally agreed that a rapid listing on the Nasdaq 100 could spur prices higher.
However, he told TechCrunch that shareholders will still be able to “vote with their feet” and sell their shares, but it may not have the same impact.
“You don’t have to buy it. If you have it and don’t like it, just sell it,” he said.
all the money
In addition to this control, Musk stands to earn historically unusual amounts of money from SpaceX going forward.
The IPO not only likely makes him the world’s first trillionaire, but also grants him a compensation package of 1 billion Class B shares.
These shares will not vest until Musk values the company at $7.5 trillion and, more importantly, achieves “the establishment of a permanent human colony on Mars with at least 1 million people.”
But while the “Mars colony” requirement may make this package seem unobtainable to many, Musk could extract a ton of value from these stocks long before SpaceX reaches the Red Planet.
In the stock award agreement attached to the IPO filing, SpaceX makes clear that Musk can vote with those shares even before they vest. Additionally, it can be pledged as collateral for a loan. This is a common move for the ultra-wealthy to give them access to large amounts of cash without being taxed on unrealized gains, something Musk has often done in the past with SpaceX and Tesla stocks.
Borrowing for these Mars colony shares technically requires board approval, but Mr. Musk controls the board. Ultimately, the decision is up to him.
These incredibly valuable shares become regular common stock once Mr. Musk sells them.
However, there is one notable exception. Mr. Musk can place them in a trust to maintain his super-voting status. That means the SpaceX king, who has at least 14 children as far as we know, could be in a position to establish dynastic rule.
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