Investor Gary Black, who is the managing director of The Future Fund LLC, has warned against a merger between Tesla Inc. and SpaceX, sharing concerns about the effects of such a move on Tesla investors.
Taking to the social media platform X on Sunday, the investor shared his concerns with the possible merger, directing his message at Tesla bulls. Black said that the deal could see a “20-25% reduction” in the value of the EV giant’s stock “if TSLA with a 100x EV/EBITDA and $1.5T market cap buys SpaceX with a 200x EV/EBITDA and $1.5T market cap.”
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The investor then broke down his analysis on why such a move would be detrimental to the company’s stock. “TSLA issues $1.5T new equity for $1.5T SpaceX equity. Combined entity now has $3.0T Equity and $22.5B EBITDA. TSLA EBITDA of $15B/year combines with SpaceX EBITDA of $7.5B/year,” the investor shared.
Black then went on to outline that post-merger stocks traded at the lowest common multiple and that SpaceX’s cash flows were “uncertain” at this moment. “Post merger TSLA/SpaceX should trade at a 100x EV/EBITDA so $2.25T,” he said, adding that the figures illustrated a 25% reduction in value for the stock, referring to it as a “conglomerate discount.”
“In my 30 years as a professional investor I have rarely seen post-merger companies trade at blended multiples based on the underlying companies’ respective multiples and growth prospects,” he said.
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However, he did acknowledge that if SpaceX were to buy Tesla instead, it “could result in short-term gains for TSLA shareholders,” but warned that it could result in earlier investors who bought the stock due to “EVs, autonomy, and robots” selling their stock.
“With conglomerates, the least common multiple generally prevails,” he said, adding that Warren Buffett‘s Berkshire Hathaway Inc. (NYSE:BRK) was the only exception to the rule. “A TSLA/SpaceX merger is a solution looking for a problem,” Black shared. “It’s dilutive for $TSLA shareholders and so unlikely to happen,” he concluded.
For $TSLA bulls excited by a potential TSLA/SpaceX merger: If TSLA with a 100x EV/EBITDA and $1.5T market cap buys SpaceX with a 200x EV/EBITDA and $1.5T market cap, the dilution math suggests a 20-25% reduction in TSLA value.
Math:
– TSLA issues $1.5T new equity for $1.5T… https://t.co/dNcXujThYI