As you may have heard, the investing world is currently abuzz with the looming initial public offering (IPO) of SpaceX. It is well-known, despite its current status as a private company, for its cutting-edge rockets, its Starlink satellite internet services, and, more recently, its ownership of xAI and X (formerly Twitter).
Of course, SpaceX is also famous for its CEO, the irreplaceable Elon Musk. Musk cuts a controversial figure. But no one can deny that his leadership of SpaceX is almost single-handedly responsible for the manic interest in its impending IPO.
According to Forbes, Musk is pursuing a dual-class stock structure for SpaceX, once it becomes a public company. Although these dual-class structures are not permitted on the ASX, they are an increasingly common choice for US stocks. Let's break down how it works.
In a nutshell, dual-class share structures create multiple versions of shares in a company's stock. Here on the ASX, we tend to follow a democratic 'one share, one vote' methodology. There is only one iteration of Telstra Group Ltd (ASX: TLS) shares, for example, and every share gives an investor one vote. That is not the case with many US stocks, though. Dual-class structures allow a company to create tiers of stock. Most of the time, these tiers represent the same ownership stake of a company, but alter its voting power.
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SpaceX IPO: 10 votes for Musk, 1 for the public
They are often created to ensure that the founders of a company can retain control over it despite being able to sell down a significant portion of their shares. What's even more startling is that the class of shares that founders and insiders tend to own is often not even traded on the public market.
This is the model that SpaceX reportedly intends to follow. Here's how it set out its proposed stock structure in its recent prospectus:
Following the completion of this offering, we will have two classes of common stock issued and outstanding: Class A common stock and Class B common stock. Each share of Class A common stock will entitle its holder to one vote per share. Each share of Class B common stock will entitle its holder to 10 votes per share. Class A shareholders and Class B shareholders will vote together as a single class on all matters to be voted on by shareholders, except Class B shareholders will be entitled to elect a majority of our board of directors in addition to having certain other class votes…
If this structure is implemented, it will allow Musk to own about half of the economic share of SpaceX, but give him more than 80% of the company's voting power. That relegates other shareholders to mere spectators in the company's affairs.
The Zuckerberg method
If that sounds rather wild, it is not, by any means, unprecedented in America. Facebook-owner Meta Platforms Inc (NASDAQ: META) follows a similar structure. Meta's Class A shares are the META stock we see being quoted on the markets every day. However, its Class B shares are unlisted and are almost all owned by founder Mark Zuckerberg. It's how 'Zuck' can own less than 15% of Meta, but has a sole casting vote on any company decisions.
Some stocks take it even further. Google-owner Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) has three types of shares: Class A, Class B, and Class C. Class A shares (GOOGL) have one vote per share. Class C (GOOG) shares represent the same ownership stake in Alphabet, but come with no voting rights. However, Class B shares represent the same ownership stake as Classes A and C, but grant their owner ten votes per share.
Class B shares are unlisted, though, and are mostly divided between Alphabet's two co-founders, Larry Page and Sergei Brin.
Companies tend to follow these dual-class structures when they want outside investors' money, but not their input. That's clearly the model Musk is pursuing at SpaceX. Given his profile and following, I'd be surprised if too many investors even cared.
