Elon Musk Scores $33 Billion In Self-Serving Merger

Forbes

02-04-2025

Elon Musk speaks at the Milken Institute's Global Conference at the Beverly Hilton Hotel on May 6, 2024 in Beverly Hills, California.
Getty Images
On Friday evening, Elon Musk announced on his social media company X that xAI, his artificial intelligence startup, had bought X in an all-stock transaction. According to Musk, the deal values the newly combined company called xAI Holdings at $113 billion.
The move to combine X and xAI invites criticism, given that Musk controls both companies. It also doesn't help that X has struggled since he took the company private in 2022. Among those struggles: an exodus of bluechip advertisers and a slump in revenue. 'Elon Musk is opportunistically using the very high valuation he has for his xAI business in order to make his investors in Twitter whole,' says Gil Luria, an analyst at D.A. Davidson. 'Elon is the controlling shareholder of xAI, he's the controlling shareholder of the company formerly known as Twitter, so he gets to make that decision.'
Investors in X aren't complaining. The new deal values the social media company at $33 billion net of debt, or $45 billion overall, which is $1 billion more than what investors initially paid for Twitter back in 2022. What's more, investors in X are swapping their shares for a piece of the combined entity that will include the artificial intelligence business, which is far more valuable. Founded in 2023, xAI has already raised more than $12 billion from investors, who have helped finance the creation of a massive supercomputer cluster in Memphis with over 100,000 Nvidia GPUs. The pending merger values xAI at $80 billion, or $30 billion more than the $50 billion valuation from the company's last outside funding round in November (which was already more than double the $24 billion valuation from xAI's prior funding round in May 2024).
'This is a historic deal,' Saudi billionaire Prince Alwaleed Bin Talal Alsaud, whose investment firm Kingdom Holding Company is a major investor in both X and xAI, boasted on X. 'After this deal, the value of our investments is expected to reach between 4 and 5 billion dollars, i.e. between 15 and 20 billion riyals, and the meter is running, thank God.'
Nobody benefits more from the merger than Musk himself. When Forbes locked in his net worth at $342 billion for the annual World's Billionaires list (which was published yesterday), his estimated 74% stake in X was valued at $7 billion while his estimated 53% stake in xAI was worth $26.3 billion. Now his estimated 59% stake in the newly combined xAI Holdings is worth $66.4 billion. That's double the combined value of his stakes prior to the merger. His net worth is now $374 billion.
What makes this even more of a sweetheart deal for Musk is the fact that X's finances last year were mixed. A February report in the Wall Street Journal citing investor materials revealed adjusted earnings before interest, taxes, depreciation and amortization of $1.25 billion on revenues of $2.7 billion, compared to $682 million in EBITDA and $5.1 billion of revenue in 2021 (before Musk took over). While the EBITDA figure looked like an improvement, a March report by the Financial Times indicated that it was 'wildly adjusted.' Fidelity, which helped take Twitter private in 2022, valued X at a roughly 70% discount to the initial purchase price as recently as January (implying an equity value of around $10 billion).
X began to look a lot more appetizing, following Trump's election and Musk's elevation to head of DOGE. Some of the bigger advertisers returned. In early February, banks holding some of X's debt sold $5.5 billion worth of loans for 97 cents on the dollar. A week later, X debt was trading at face value. In March, X raised $1 billion in fresh equity at a $44 billion valuation (including $12 billion of debt) from outside investors, setting the stage for a combination with xAI at a similar valuation. The backers in that round included Sequoia Capital, 8VC, Andreessen Horowitz, Fidelity, 1789 Capital, Goanna Capital, and Bossa Invest, according to PitchBook.
The main driver for investors who bought X shares in March was the social media company's ties to xAI, says one X investor. Prior to the merger, X held a 10% stake in xAI worth $5 billion, while xAI is feeding data from X into its large language model. Investors were 'well aware that X and xAI would merge at some point,' says the X investor who asked to remain anonymous in order to speak candidly. 'The ability for Elon to merge xAI with X makes an even more compelling investment thesis for X.'
While xAI's new $80 billion valuation is a significant bump from $50 billion in November, it's in line with where the startup has been trading in secondary markets, where xAI has commanded a valuation of between $80 billion and $100 billion since early January, according to research firms Caplight, Notice.co and PM Insights, which track private market data. In February, a group of investors (including again Sequoia Capital and Andreessen Horowitz, which later backed X in March) were reportedly seeking to invest in xAI at a $75 billion valuation.
Columbia University law professor Dorothy Lund, who has followed Musk's career closely, points to the merger's similarities with a previous Musk deal from around a decade ago: Tesla's 2016 acquisition of SolarCity, a green energy company run by Musk's two cousins and backed by Musk. Despite the appearances of self-dealing and an investor lawsuit (which was finally resolved in Musk's favor in 2023), the SolarCity acquisition turned out okay for Tesla and its investors. 'There's a lot of levels that we could be critical and skeptical of this deal,' says Lund. 'There's also the level that maybe in five years, we look back and see [how] it turned xAI into the top AI company.'