Elon Musk’s megadeal between X and xAI breaks Wall Street’s rulebook
Summary
The tech titan can follow his own rules when he is combining two companies he owns, but the merger is still raising dealmaker eyebrows.
Elon Musk struck what could be considered the biggest deal of the year, and he broke all the normal rules.
Musk’s splashy merger of the social-media company X and his artificial-intelligence startup xAI values the combined company at over $110 billion. That would be a blockbuster deal on Wall Street. But this one is unorthodox, even by Musk’s standards, for a whole host of reasons.
The valuation was surprising and so was how the companies got there. Only one set of advisers worked for both sides, when a deal of this size would normally take armies. In short, the unusual process resulted in a megadeal few public companies could get away with.
That deal consists of a $33 billion price tag for X, alongside a $80 billion valuation for xAI.
The new $80 billion valuation figure for xAI is a big jump from just four months ago, when the company was valued at $50 billion in its last fundraising. The new level was set as part of the merger talks, not in a new funding round.
“It’s funny money," said Andrew Verstein, professor of law at the University of California, Los Angeles, Law School. “It’s like using Monopoly money to buy Pokémon cards."
The deal is an all-stock transaction, so no cash is expected to change hands. X and xAI shares will be traded for stock in a new holding company, meaning the companies essentially agreed on an exchange rate for their shares.
The advisers worked both sides
Also unusually in this deal, the same advisers worked on both sides of the transaction: Morgan Stanley and Sullivan & Cromwell.
Typically, separate bankers and lawyers work with a buyer and a seller, and in negotiations they are jostling for the best possible deal for their respective client. There would also likely be some sort of market check to ensure there aren’t any other possible bidders.
Morgan Stanley landed its role after advising and helping to finance Musk’s original $44 billion acquisition of Twitter.
At Sullivan & Cromwell, lawyers Mike Ringler and Peter Jones led the X/xAI negotiations, having joined the firm about a year ago from Skadden, Arps, Slate, Meagher & Flom. The duo had advised Musk on his Twitter deal while at Skadden.
For those advisers, it was more about keeping their relationship with Musk and his empire, rather than landing a big deal fee.
Other Wall Street bankers and lawyers said Monday that they weren’t lamenting over missing the deal. (They are more excited by the next-biggest deal of the year, Google’s $32 billion acquisition of cybersecurity startup Wiz.)
A reason that xAI is merging with X is because the X platform offers real-time and proprietary data, people familiar with the matter said.
A deal a public company couldn’t do
The size of the deal is unusual for private companies. Even when Musk used his Tesla business in 2016 to buy his solar-energy company SolarCity, both were publicly traded businesses.
Massive corporate tie-ups tend to be between public companies. And public shareholders aren’t shy about suing when they don’t think they got the best possible deal. Litigation around deals is common, especially in Delaware, where the lion’s share of large companies are incorporated.
If this were a public-company merger, shareholders on each side would demand that independent directors and advisers determine the proper valuations.
But xAI and X likely aren’t at risk from litigation, observers say. Business courts in Nevada, where both companies are incorporated, tend to be less protective of shareholders, according to Dorothy Lund, a professor at Columbia Law School. Musk has moved to keep his companies out of Delaware after his multibillion-dollar pay package from Tesla was rejected by a judge there.
Problems generally arise when shareholders on one side of a deal think they are overpaying or getting shortchanged. But X and xAI share several investors, so that isn’t a big issue here. And, many of the investors are backers of Musk more broadly, making it unlikely they would want to complain even if they didn’t like the transaction, said people familiar with the deal.
Several investors cheered the deal, including in X posts.
Unfortunately for dealmakers, this particular transaction may not offer the best sign that M&A activity is generally on the rise, after the start to 2025 was lacking in megadeals.
If anything, bankers said, it could offer a sign that there will be more deals for social-media companies or similar internet platforms looking to bolster their data sets for artificial intelligence.
A big reason that xAI is merging with X is because the X platform offers real-time and proprietary data (hundreds of millions of active users posting on the platform), people familiar with the matter said.
Write to Ben Glickman at ben.glickman@wsj.com and Lauren Thomas at lauren.thomas@wsj.com.
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