ERShares founder and chief investment officer Joel Shulman says the ERShares Private-Public Crossover ETF (NASDAQ: XOVR) keeps roughly 18%–20% exposure to SpaceX (NASDAQ: SPCX). That makes any merger or acquisition activity involving the rocket maker especially significant for the fund.
"We are extremely bullish on SpaceX as a standalone investment and view it as a multidecade holding, much like our investment in Nvidia (NASDAQ: NVDA) over the past 21 years," Shulman told MarketDash.
But his optimism comes with a caveat: the price SpaceX might pay to acquire Tesla, Inc. (NASDAQ: TSLA).
"My greatest concern is the price SpaceX would have to pay to acquire Tesla," Shulman added. "Tesla already trades at historically elevated valuation multiples, and its shareholders would likely demand an additional acquisition premium."
For XOVR, the implications would hinge on the valuation assigned to both businesses and the consideration received for SpaceX shares. If SpaceX pays a substantial premium, existing SpaceX shareholders could surrender some of their potential long-term gains to Tesla shareholders.
A stock-for-stock transaction could also dilute existing SpaceX shareholders by increasing the combined company's share count.
"Preserving [Elon] Musk's control while protecting shareholder value would be central to the transaction structure," Shulman said, identifying free cash flow per share and long-term earnings growth as key measures of success.
How Could a Merger Affect XOVR?
XOVR does not directly hold SpaceX shares. According to ERShares' disclosures, it gains exposure indirectly through special purpose vehicles (SPVs) linked to private-market securities. The fund's reported SpaceX SPV position represented 18.28% of net assets.
The transaction's impact would depend on its structure, including whether the SPV receives shares in the combined company, cash or other consideration. The resulting valuation and market reaction would also affect the fund's reported exposure and net asset value.
Shulman said, "The ultimate impact on XOVR would depend on the transaction valuation, exchange ratio and market reaction."
A merger could create opportunities across artificial intelligence, robotics, autonomous driving and satellite communications. However, Shulman cautioned that technological synergies could take years to translate into measurable earnings.
What Investors Should Watch
For XOVR shareholders, the central question is whether a merger enhances SpaceX's long-term value or diverts resources toward an expensive acquisition.
Investors should monitor the proposed exchange ratio, any acquisition premium, potential dilution and the combined company's ability to generate free cash flow per share.
No deal terms have been agreed, and both companies' boards are evaluating a potential combination. SpaceX's SEC filing states that no assurance exists that a transaction will be reached or completed.
For XOVR, the outcome could ultimately depend less on the headline size of a combined Musk-led enterprise and more on how much value SpaceX shareholders retain after the deal.
