SpaceX-Tesla Merger: Antitrust Risks Emerge, S&P Inclusion May Bring About 10% Passive Buying

TradingKey - Elon Musk disclosed during SpaceX's (SPCX) third-quarter earnings call that SpaceX and Tesla (TSLA) have each formed a special committee composed of independent directors to discuss a potential merger.

Musk supports the integration of the two companies, but due to conflicts of interest, he is not participating in committee discussions, and the two sides have not yet reached an agreement on transaction terms. As merger discussions enter the special committee evaluation phase, potential antitrust hurdles, as well as adjustments to index weightings and passive capital that the deal might trigger, have become new focal points of market attention.

SpaceX-Tesla Merger May Trigger Antitrust Probe

According to Semafor, a former U.S. Department of Justice official said the risk of antitrust concerns arising from a merger between Tesla and SpaceX is real.

The official noted that regulators typically view vertical mergers as helpful in improving supply chain efficiency, but if a deal enables the combined company to restrict competitors' access to key technologies, regulators might attempt to block it.

For instance, if only Tesla vehicles are allowed to use technologies such as SpaceX's Starlink in the future, other autonomous driving or electric vehicle manufacturers could be harmed. Consequently, the review would focus on the post-merger openness of the technology and whether competitors could continue to access related services.

The official said the ultimate outcome depends on the specific terms of the transaction and the enforcement appetite of antitrust agencies aligned with Trump. If Democrats retake the House next month, Musk could also face congressional investigations, putting his moves to integrate his companies under further scrutiny.

Expected S&P 500 Inclusion After Successful Merger Could Drive Buying of About 10% of Float

JPMorgan's global market strategy team estimates that if the two sides merge via a stock-for-stock transaction, the S&P Index Committee might grant an eligibility exception to maintain benchmark continuity, allowing SpaceX to enter the S&P 500 and generating passive buying demand equivalent to roughly 10% of the free float at the time of the deal.

The post-merger weight depends on the free-float ratio recognized by the index. If SpaceX maintains a free-float factor of around 17%, the combined company's pro forma weight in the S&P 500 would be approximately 1.9%; if the ratio rises to about 80%, its weight could approach 3.0%, making it the sixth-largest constituent.

Sector classification will also lead to capital adjustments. If Tesla exits the Consumer Discretionary Select Sector SPDR Fund (XLY), it is expected to trigger about $4 billion in outflows; if SpaceX enters the Communication Services Select Sector SPDR Fund (XLC), it could receive about $3 billion to $4 billion in buying demand.

Meanwhile, because both companies are already Nasdaq 100 constituents, the merger itself is not expected to generate significant immediate buying. Instead, the combined entity might hit concentration caps, resulting in roughly $10 billion to $14 billion in passive selling. Therefore, net capital flows from the merger still depend on the deal structure and final treatment by each index.

In addition, JPMorgan expects that an increase in SpaceX's free-float ratio will bring about $14 billion to $15 billion in passive demand during the Russell index reconstitution in December. This buying demand stems primarily from post-listing share lockup expirations and should be calculated separately from the index capital flows generated by the merger.