SpaceX’s recent acquisition of AI startup xAI was carefully structured to shield the rocket company from the AI firm’s existing debts and potential legal liabilities, according to sources familiar with the transaction as reported by Reuters.
Merger Structure Isolates xAI’s Financial Obligations
The acquisition utilized a triangular merger, a corporate structure that allows SpaceX to retain xAI as a wholly owned subsidiary. This approach ensures that xAI’s debts, estimated to be at least $12 billion inherited from X and additional billions raised since, remain separate from SpaceX’s balance sheet. Consequently, SpaceX is not obligated to repay these debts. The structure also sidesteps potential change-of-control clauses in xAI’s debt agreements that could have triggered immediate repayment obligations.
Gary Simon, a corporate attorney at Hughes Hubbard & Reed, explained that in such acquisition structures where the target becomes a subsidiary, the parent company is not automatically liable for the subsidiary’s prior debts.
MUSK STRUCTURED SPACEX’S ACQUISITION OF XAI AS A TAX-FREE, TWO-STEP MERGER THAT MAKES XAI A SPACEX SUBSIDIARY, SHIELDS SPACEX FROM LEGAL LIABILITY, AND ELIMINATES ANY OBLIGATION TO REPAY XAI’S DEBT, SOURCES SAY.— First Squawk (@FirstSquawk) February 6, 2026
Debt Default Avoided Through Strategic Deal Design
Matt Woodruff, a senior analyst at CreditSights, noted that the merger was designed specifically to avoid triggering change-of-control provisions within xAI’s debt agreements. Even if SpaceX could have qualified as a “permitted holder” under these agreements, the chosen merger structure eliminates any ambiguity. Woodruff stated, “There’s really no realistic possibility that this would trigger a default given the way it is structured.”
Despite the significant valuations involved—xAI at $250 billion and SpaceX at $1 trillion—the deal is not expected to impact SpaceX’s planned initial public offering (IPO) later this year.
SpaceX has not yet issued an official comment on the matter.