The news of recent weeks has been dominated by the rumors that Elon Musk is interested in buying Amazon for its market value of over $1 trillion. According to sources, Musk is keen to purchase the retail giant in order to boost Tesla’s stock price, expand his fleet of businesses, and add one of the most valuable companies to his portfolio. Those with knowledge on the matter believe that a deal could happen as early as this month, though whether or not it does depends on Amazon’s own plans.
The possibility of a Tesla and Amazon merger has been met with a great deal of excitement and speculation, as the two companies represent a formidable combination in terms of resources and clout. As the world’s largest online retailer, Amazon would bring with it a customer base of over 300 million and a cloud-computing infrastructure and machine learning capability that Tesla could take advantage of. From the perspective of existing Tesla shareholders, the amalgamation could bring a windfall of returns and make Musk’s portfolio even more diversified.
The idea of an unprecedented takeover has some experts questioning its feasibility. Despite the apparent benefits, Mark Mahaney, a lead analyst at RBC Capital Markets, believes that the chances of the buyout being a success are slim. “It would be the most expensive merger-and-acquisition in history. It’s a trillion-dollar company. It’s going to be hard to move this one through the regulatory bodies.” Mahaney believes that whatever deal may be struck would face some major hurdles, with its success depending on the pricing and structure of the agreement.
Financial analysts are also divided about the potential buyout. Fred Speer, founder of Nucapital Investment Group, thinks it is more of a stunt than a practical plan, noting that “buying Amazon would be a somewhat quixotic endeavor… Musk has enough on his plate.” He believes that Musk is just trying to distract from Tesla’s disappointing share performance in recent weeks. Meanwhile, Mike Lippert of Audentio Asset Management differs in opinion, saying that “buying Amazon would allow Musk’s empire to access a massive platform of customers and services” as well as helpful technologies like AI and neural networking. Regardless of the outcome, Lippert is certain that a deal “would have a huge impact on the retail and technology industry”.
Speculation on the matter has been further amplified by Musk himself, who took to Twitter repeating the ‘rumours’; a move which the SEC has since accused him of “seeking to use his status and reputation… to manipulate the market”. While some may think that the business mogul was just piquing investor interest in Amazon, the SEC has responded with an intention to investigate the issue further.
Whatever the ultimate truth is about the Porsche-Amazon nexus, it is clear that the idea of such an unprecedented buyout has captivated the financial world. All eyes will be on Musk in the coming days, as it is still uncertain whether such a feat is possible.
Strategy
An obstacle to the merger that would be difficult to sidestep is the strategy both companies have implemented in their respective pursuits of success. Amazon has ambitions to become a global leader in logistics while Tesla is singularly focused on electric vehicles. Any acquisition would have to include a clear strategic synergy between the two tech behemoths in order for the deal to be worth the investment.
On one hand, a combination could bring together a variety of competitive advantages for both companies. Amazon’s cloud-computing and machine learning capabilities would be a huge asset for Tesla’s autonomous vehicle operations. Conversely, Tesla’s innovation in batteries and electric powertrains could benefit the e-commerce giant by providing a sustainable solution for delivery. There is also potential for Amazon to become involved in Tesla’s own development, with Elon Musk and his team being able to take advantage of the company’s ability to drive growth.
The joint venture may also bring with it unforeseen challenges, such as possible discrepancies in leadership strategies. Both companies possess very different business models and each have become successful due to their unique approach. Musk is known for his hands-on management and unorthodox decisions, while Amazon CEO Jeff Bezos has had a strong hands-off approach, relying on centralized processes and systems. Despite this, the ambition of the two leaders should be enough to build a common strategy that could bring their two companies together.
Economics
Though Amazon and Tesla have been linked to each other for some time, it is nonetheless difficult to discuss the economics of a potential buyout. Amazon is currently worth more than $1.6 trillion, making it the most valuable company in the world. Additionally, the retail giant reported profits of over $14 billion in the last financial year, against a negative financial statement from Tesla. Given the huge price tag and profitability discrepancy between the two behemoths, making sense of a buyout is not an easy feat.
That being said, there is still some financial benefit in the suggestion of an Amazon and Tesla merger, primarily due to their respective loyalty bases. Amazon Prime subscribers have a tremendous amount of consumer spending power, and Tesla owners have a strong affinity to the brand. With a combined consumer base of over 400 million, the two companies could create a powerful dynamic that would dominate consumer markets.
The acquisition could also create a cash flow problem for Musk should it go through. Analysts believe that Tesla would need to take on debt, issue more shares and use its own capital reserves in order to finance the transaction, which could leave the company strapped for resources later on. On the other hand, Elon Musk has proven himself to be an astute investor and with the right investors on board, Tesla could easily make the purchase with some strategic manoeuvring.
Regulation
Regulatory issues may prove challenging to any buyout agreement. Competition law could be a major hurdle if the companies are seen as creating a monopoly due to their size and influence. Both Tesla and Amazon have already come under the scrutiny of government authorities in the past, and it is questionable whether a union could meet the criteria set by EU and US regulators.
The deal could also be rejected by antitrust authorities due to a lack of competition. Despite Amazon’s current market dominance in e-commerce, the company has ventured into other areas such as streaming and IT infrastructure development, which could be seen as more competition-friendly. On the flip side, Tesla has single-handedly revolutionized the automotive industry, shattering the old monopolies with its cutting-edge technology.
It is clear that regulatory bodies would need to make a judgement call on any possible number of factors before a deal is approved. The size and influence of the two companies as well as their respective portfolios and market share would need to be considered before authorities give a green light to the union.
Investors
One of the most overlooked dimensions of the potential merger is its effect on the investors of both companies. A successful union of Tesla and Amazon would draw unparalleled investor interest and the success of the partnership may come down to the trust between the two sides. Mutual trust between two of the most powerful companies in the world would ensure stable returns to their investor pool.
Some analysts believe that a merger could also be viewed as a win for existing Amazon shareholders. Tesla has continuously performed well in the stock market and its acquisition of Amazon could represent a huge chunk of profits for investors of the retail giant. With a combined revenue of more than $480 billion, the union could be the biggest windfall in corporate history.
Tesla investors would also benefit greatly from a buyout. With Amazon behind it, Tesla’s stock could skyrocket in value and yield a healthy return on investment. This could be a great opportunity to get involved in the stock market or increase their exposure if they already own a stake in the company. Should the deal come to fruition, many Tesla and Amazon investors could be in for a large payout.
Conclusion
The potential merger of Tesla and Amazon is an intriguing prospect, to be sure. While the dream of adding Amazon to his portfolio may be alluring for Elon Musk, the reality of the situation is clouded in uncertainty. Major regulatory obstacle and strategy differences could mean that the buyout never comes to fruition and only time will tell. Investors and analysts will be closely monitoring the events as they unfold.
