SpaceX‑xAI merger delivers tax deferral for xAI shareholders and avoids debt repayment

Elon Musk has merged SpaceX with xAI in a way that helps shareholders skip paying taxes right now and lets the company dodge billions in debt.

As Cryptopolitan reported earlier, the deal has made SpaceX worth $1.25 trillion pre-IPO, and also keeps xAI running as its own company under SpaceX, not fully combined, thereby stopping any of xAI’s legal or financial problems from landing on SpaceX.

xAI owns the X social media platform and created the Grok AI chatbot. X is being investigated in Europe for allegedly letting Grok spread deepfake images of real women and children.

By keeping xAI separate, SpaceX stays clear of those legal issues. The merger became official on Monday and sets up a path for SpaceX to go public later this year.

Musk avoids debt payout and tax hits using merger tricks

Elon didn’t merge the companies in the traditional way. Instead, he used a structure called a triangular merger, which is common in big company deals.

xAI just became a wholly owned subsidiary, so SpaceX now owns xAI but doesn’t get tied to its past contracts, lawsuits, or debts.

Gary Simon, a corporate attorney at Hughes Hubbard & Reed, said, “In an acquisition where the target ends up as a subsidiary of the buyer, no prior liabilities of the target necessarily become liabilities of the parent.” He said that keeping stockholders protected from lawsuits is one big reason buyers do it this way.

There’s also the tax angle. The deal was structured as a tax-free reorganization. That means anyone who had xAI shares doesn’t pay tax when they receive their new SpaceX shares.

They’ll only pay tax if they sell them later. Every xAI share turned into 0.1433 SpaceX shares. The numbers from the deal put xAI’s value at $250 billion and SpaceX at $1 trillion.

Another major win for Elon is the way the deal avoids repaying xAI’s massive debts. When xAI bought X in 2025, it picked up $12 billion in debt. Then it added at least $5 billion more. That kind of debt usually comes with rules that force early repayment when the company is sold.

But because the deal went through two shell companies in Nevada and used Musk’s name as the link, those debt rules didn’t kick in.

Matt Woodruff, a senior analyst at CreditSights, said, “The permitted holder definition includes the principal investor and its affiliates, which of course is Musk. That would presumably mean SpaceX is treated as an affiliate, so a change of control is not required.”

The debt markets liked what they saw. Last summer, xAI sold $3 billion worth of five-year bonds with a high interest rate of 12.5%. Before this merger news, they were trading at 107 cents on the dollar. After the deal, they went up to 113.5. The stronger financial health of SpaceX gave investors more trust in those bonds.

This was an all-stock transaction, and it’s now the biggest corporate merger ever recorded by LSEG data. And despite the size of the deal, it hasn’t changed SpaceX’s IPO schedule.

Bret, the company’s CFO, invited top bankers to SpaceX’s headquarters in Hawthorne, California last month. He didn’t say anything about xAI during the IPO talks. Bankers were told to pitch their ideas, and winners would be chosen this month.

Reports say SpaceX might raise over $50 billion when it goes public and could be valued at more than $1.5 trillion. The IPO could line up with Elon’s 55th birthday on June 28.

When a company buys another business before going public, it can trigger SEC rules. If the new company is considered “significant,” then financial details must be shared.

But that depends on things like revenue and assets. Gary said, “If it doesn’t meet the ‘significant subsidiary’ test, SpaceX generally would not have to include xAI’s financials in its IPO filings with the SEC.”

Still, some investors are uneasy. SpaceX already handles rocket launches, Starlink, and U.S. military work. Now it’s adding AI and social media. Elon has even talked about bringing in financial services through the X platform. That makes the company harder to value.

Justus Parmar, the CEO of Fortuna Investments and a SpaceX shareholder, said, “How would you value a company like that when there is no competition?” He called the combined company a “conglomerate.”