Musk’s $1.8 trillion SpaceX IPO could be ‘highly undesirable’ for some
SpaceX’s IPO could challenge pension funds as concerns grow over its valuation and governance structure under Musk. SpaceX is expected to debut on the United
SpaceX’s IPO could challenge pension funds as concerns grow over its valuation and governance structure under Musk. SpaceX is expected to debut on the United States’ public markets on Friday in what will be the largest initial public offering (IPOs). Artificial intelligence (AI) giants OpenAI and Anthropic are also widely expected to go public soon, and thanks to a new rule change by tech stock exchange Nasdaq, individual investors could own stock of these companies when they go public in as soon as 15 business days following its first trading day. SpaceX is valued at nearly $1.8 trillion, or $135 per share, surpassing Saudi Aramco, which debuted in 2019 at $1.7 trillion at what had so far been the biggest IPO. SpaceX’s IPO is generating buzz among retail investors. The Elon Musk-led company is expected to allocate 20 percent of shares to retail investors and has drawn roughly $70bn in orders, according to the Reuters news agency. Historically, there is a waiting period between when a company goes public and when it is listed on the Nasdaq-100 index and/or S&P 500. Companies typically must demonstrate profitability over the previous four quarters for the S&P 500 and three calendar months for the Nasdaq-100, excluding the month of listing. SpaceX lobbied for a waiver for so-called mega cap companies. Musk’s efforts returned mixed results. In early May, Nasdaq made a rule change that could allow the Texas-based company to enter the index after just 15 trading days. S&P Dow Jones Indices, which runs the S&P 500 index, did not change its rules. Buying in While there has been a lot of excitement for this IPO and it is oversubscribed at a rate of up to four times its planned offering as per US media reports, there are also concerns that it may be highly overvalued and that could expose especially retired investors who put their life savings in pension funds and don’t have a say in stocks that are chosen. Analysts at MorningStar, for instance, have valued SpaceX at $63 a share, a 53 percent discount to the upcoming IPO price. On Wednesday, North Carolina state’s treasurer said that it would not buy a direct stake for the state’s pension fund for teachers, firefighters and police officers because it was too expensive, but would invest through the larger index funds it invests in. “We will ultimately participate in SpaceX through our index positions in our public equity,” Treasurer Brad Briner told the news outlet CNBC. Pension fund investments are tied to index funds pegged to the performance of stocks in the S&P 500 and others in the Nasdaq-100, among others.
That means that consumers who have a pension, they may not have a choice to opt in or opt out. Essentially, the seasoning period allows companies to prove that the stock is not overvalued, providing a buffer to investors who may own index funds on behalf of their clients. “They have to buy the stocks that are in the index in proportion to their weighting within the index. As a result, they will all be forced to buy these companies immediately, and that could be highly undesirable,” Aleksander Tomic, associate dean for strategy, innovation and technology at Boston College, told Al Jazeera. Excluding a single company would require creating an entirely new fund. “If SpaceX enters the Nasdaq, these fund managers can’t simply choose not to track it because they are contractually obligated to follow the index,” Colin Clark, lead adviser and director of business analytics at Northwestern Mutual, told Al Jazeera. “If you want to attribute it to anything, it is the platform itself, where the Nasdaq may be bending the rules to allow a sooner-than-normal entry into the index system,” Clark adds. These changes also set the stage for the looming OpenAI and Anthropic IPOs. On Monday, OpenAI confidentially filed its IPO. While the AI giant did not disclose the terms of the deal, it has been widely reported that it is aiming for a $1 trillion valuation. Earlier this month, Anthropic also confidently filed its IPO for undisclosed terms. Like OpenAI, it is expected to be valued at about $1 trillion. Governance strategy qualms As part of the looming IPO, SpaceX outlined how the company will be governed. That has raised concerns among state-level fund managers who run pension funds. Under the new policy, SpaceX would give Musk outsized control and weaken board accountability. In theory, boards can remove chief executives. But under the proposed structure, Musk would control as much as 85 percent of voting power despite owning 42 percent of equity. “Removal of the Company’s most powerful officer would, as a mathematical matter, require his own vote – essentially making him unfireable without his own consent,” a letter authored by Thomas DiNapoli, New York State comptroller; Mark Levine, New York City comptroller; and Marcie Frost, CEO of the California Public Employees’ Retirement System, said in May. “This level of insulation from accountability is virtually unheard of among any other large US issuer whose governing documents foreclose accountability to public owners on these terms.” This governance structure will limit shareholders’ ability to have a say in the company. But this governance strategy means that it will be very difficult for the board to remove Musk if necessary, a plan that Tesla explored, the Wall Street Journal reported last year.
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