By Echo Wang, Milana Vinn, and Matt Tracy

NEW YORK, Feb 5 (Reuters) – So, Elon Musk just pulled another one of his iconic moves, using a two-step merger with SpaceX buying xAI. Clever, right? It’s like weaving financial wizardry and avoiding billions in debt, while also giving shareholders a sweet tax break. Plus, it shields SpaceX from xAI’s potential legal headaches.

The outcome? A whopping $1.25 trillion company that’s got everyone buzzing about an IPO later this year. Musk’s got his sights set on placing data centers in space. Talk about out of this world!

Instead of meshing everything into a single outfit, Musk’s plan is to let xAI do its thing as a wholly owned subsidiary of SpaceX. This setup? It’s known as a triangular merger—a favorite among the corporate crowd for its tax-smart efficiency and legal protection.

Here’s the deal: xAI remains in charge of its debts and legal issues. SpaceX? Stays out of that mess. Especially since xAI’s social platform, X, is under scrutiny in Europe over some sketchy deep-fake images Grok reportedly shared.

X tried to clean house last month by preventing the [@]Grok account from editing images of folks in risky outfits globally. They’re saying they’re committed to a safer platform. But man, that’s a lot of drama!

Gary Simon from Hughes Hubbard & Reed weighed in, saying, “When you buy a company this way, their old debts don’t automatically become yours.” Smart move, Musk. Keeps SpaceX’s hands clean.

Here’s a kicker—a tax-free reorganization. xAI shareholders can hold onto their taxes on SpaceX shares until they decide to sell. xAI was valued at $250 billion, with each share converting into 0.1433 of SpaceX stock. Yeah, there’s more magic to it!

Musk’s maneuvering involved two intermediary outfits in Nevada. The goal? Skate around xAI’s debt covenants, dodging the need to console bondholders. Rumor has it xAI had $12 billion to deal with from acquiring X, plus another $5 billion since.

Matt Woodruff from CreditSights chimed in on the situation, pointing out that SpaceX, being Musk’s “affiliate,” wouldn’t face a control-change requirement. SpaceX basically keeps skating smoothly.

The bonds’ value is climbing, thanks to SpaceX’s stable strength. Those five-year bonds from last summer? They’re doing better than ever—up to 113.5 on Wednesday from a mere 107 cents last week.

Need more context? SpaceX cleared this historical M&A transaction with xAI pegged at $250 billion and itself at a cool $1 trillion. It’s like Wall Street’s having fireworks every day.

There’s word that SpaceX’s IPO dreams aren’t slowing down amidst this whirlwind. Execs gathered at the HQ in Hawthorne, California, keeping the talks upbeat. More than a $50 billion raise may be on the line, banking giants are elbowing to earn SpaceX’s nod.

SpaceX’s Bret Johnsen is keeping the IPO timeline intact, maybe even tying it to Musk’s birthday this June. Bankers impressed the suits there with plans, aiming to grab a slice of what might be the world’s biggest IPO.

Potential bumps? Sure, a merger this grand might need to finagle through regulatory hoops, but with a bit of legal mojo, xAI might dodge any “significant subsidiary” tags from the SEC.

Some investors are a little anxious—who wouldn’t be? Folding AI, social media, rocket launches, and Musk’s dream for financial services into one? It’s a lot. But Musk’s storied execution draws them in.

Justus Parmar, CEO of Fortuna Investments, put it well: There’s no roadmap. Musk’s vision and skillset? Enough said. Investors are on board for his journey, whatever zany turns it takes.

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