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Elon Musk is, among other things, the king of related party transactions. Almost a decade ago, Tesla bought SolarCity, a clean energy startup supported by Musk and his brother. Today, the tech billionaire is merging Xai and X in an all-stock deal, previously known as Twitter. This values the former stock at $800 billion, and the latter at a total of $113 billion.
From an industrial standpoint, it is probably wise to bring these companies together. One could be a mature social network, and the other could be a rocket ship artificial intelligence startup. However, Xai’s Grok Chatbot eliminates social media data, and Grok is undergoing tireless conflict with X users.
The enormous ratings attributed to both companies could have raised eyebrows. However, both groups are private and under tight control. In this case, this figure is less beneficial than the number of public companies derived from daily transactions with liquidity.
And of course, with all stock combinations, the ratio of sizes between the two companies is the most interesting, rather than absolute value. It determines the size of the combined pie slices for each set of shareholders. In this case, Xai has earned about 70%, while X’s has earned the remaining 30%.
It’s difficult to tell if this is fair or not. Xai has little revenue, but clearly there are many promises. The current $800 billion valuation looks particularly juicy, as it was valued at $45 billion in the private market a few months ago. It benefits from the excitement that technology is creating today.
On the other hand, the animal spirit of X is enthusiastic. The bank recently sold its debt at almost face value. This is a dramatic shift compared to the tormented levels that were being traded in late 2024. Musk also added new fairness to the rough ratings X is getting from this deal. Clearly undergoing intense adjustments, the annual EBITDA is only $1.2 billion, roughly the same as interest payments, meaning an enterprise value of more than 35 times the EBITDA. This is a lot for businesses that rely on slower advertising revenue.
Both companies have many ordinary shareholders. It starts with a mask, but includes venture capital investors. In fact, Musk gave investors who supported the Twitter acquisition a quarter of Xai’s stake. If the exchange rates turned out to be biased, then at least they would have been on both sides of the transaction.
Only one of the two investors will consider relative ownership more closely to weigh the creation or destruction of value. Both Xai and X suffer from severe grade inflation, so even if the absolute size isn’t, the way Pie slices might make sense. And anyway, Musk controls both companies and almost certainly has the final say.
sujeet.indap@ft.com
