Rather than pursue a conventional initial public offering, SpaceX could go public through a merger with wireless phone, TV and satellite company EchoStar.
It's an admittedly an unconventional and seemingly far-fetched idea, but SpaceX's leader and controlling shareholder, Elon Musk, is a maverick who has succeeded by flouting conventional rules.
Here's why such a transaction could make sense.
The companies already have done business together. SpaceX bought spectrum from EchoStar that it can use for its Starlink satellite broadband service for cash and stock in two separate transactions in September and November for about $20 billion. The package included $11 billion in SpaceX stock and that has turned EchoStar into the best publicly traded play on SpaceX.
EchoStar stock has risen 50% since the first SpaceX transaction to nearly $103 and could have more upside since it now reflects what appears to be low valuation for SpaceX relative to what it may command as a public company. The deals were struck at an estimated SpaceX valuation of $400 billion -- half of what it could command as a public company. EchoStar's market value is now about $30 billion. EchoStar now owns an estimated 2%-plus of SpaceX equity and that stake represents about half the value in the company.
Neither company responded to a request for comment.
The Wall Street Journal reported recently that SpaceX has started a selection process for hiring investment bankers for a potential 2026 IPO.
The alternative, a merger with EchoStar, probably would allow SpaceX to go public more quickly than through a traditional IPO. It would permit SpaceX to make greater use of financial projections in wooing investors than an IPO.
The S-4 document used in mergers allows more freedom on forward guidance than IPO prospectuses that tend to be almost entirely backward looking.
That difference could be critical for SpaceX since the potential valuation that it may seek of over $1 trillion, based on published reports, hinges on what it can earn in the next decade or more.
The company is expected to generate about $15 billion in revenues in 2025 based on Musk comments earlier this year and possibly $22 billion or more in 2026. A $1 trillion-plus valuation would amount to about 50 times projected 2026 sales, a lofty multiple when many high growth companies sell for less than 10 times sales. So telling the future SpaceX story could be critical to its valuation as a public company.
A SpaceX/EchoStar deal would be feasible from a tax and accounting standpoint. New York tax expert Robert Willens tells Barron's it could be structured as a "reverse acquisition" with SpaceX effectively buying EchoStar and it would be a tax-free combination. Such a merger "makes a lot of sense," Willens says.
It would be akin to a SPAC transaction (special purpose acquisition company) where an existing business merges with a SPAC shell and takes the existing business's name. The new company in this case would be called SpaceX.
The two companies have done business together with Echostar's co-founder, Chairman and controlling shareholder Charlie Ergen, saying on the company's third-quarter conference call in November that EchoStar has worked with SpaceX for a decade on satellite launches and that SpaceX is the "best vendor" in space.
Ergen is 72 and controls just over half of EchoStar's stock and has about 90% voting control. A deal with SpaceX would give him an exit strategy and a liquid stock in a much larger entity that he admires.
EchoStar will have a strong balance sheet after the SpaceX spectrum sale and a larger one for about $23 billio n with AT&T in the summer. In a presentation, EchoStar says it will have about $24 billion in cash and $13 billion in debt after those deals -- and more spectrum sales could be coming.
A deal with EchoStar would give SpaceX plenty of cash to invest in Starlink, its satellite broadband service with eight million customers, and other space initiatives.
On EchoStar's third-quarter earnings conference call, Ergen said that the company would seek to make investments with the cash but didn't provide specifics. TD Cowen analyst Gregory Williams, who has a Buy rating on EchoStar, wrote that the company's plans now are "vague" but noted that it's early in the investment phase given that the AT&T and SpaceX deals only came in recent months.
EchoStar already has a consumer wireless business, notably Boost, with over seven million customers. It also owns Sling, a leading livestreaming TV service and a satellite-based TV business with a combined seven million subscribers. as well as a satellite and network services business.
Those operations plus EchoStar's remaining spectrum could be valuable to SpaceX as it builds out Starlink.
By executing a merger with EchoStar, SpaceX could fix its valuation at a mutually agreeable level and not be subject to the whims of IPO investors about what the company is worth.
Such a transaction likely would be less costly for SpaceX, since the investment banking tab for a traditional IPO could hit $500 million if SpaceX raises $25 billion or more.
A merger with EchoStar might seem like an outlandish idea, but there are many benefits and it's something for Musk to consider.
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