“Those are my principles, and if you don’t like them ... well, I have others,” Groucho Marx famously quipped. SpaceX, in advance of its planned June initial public offering (IPO), is proving the point, with banks and index providers alike bending to Elon Musk’s will.
The New York Times reports that Musk is insisting banks hoping to advise on the IPO must first buy subscriptions to his AI chatbot, Grok.
Grok is widely seen as inferior to the likes of ChatGPT and Google’s Gemini, but that hasn’t prevented bankers from dutifully complying, with some reportedly spending “tens of millions” on the chatbot.
One might expect little different from bankers eager to get a piece of what may become the largest IPO in history, but the rule adjustments being made by index providers is unprecedented, bending long-standing norms to accommodate a single company.
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Nasdaq has approved a fast entry for supersized listings, allowing SpaceX to join the Nasdaq-100 15 days after listing, far shorter than the usual three months. S&P Dow Jones is reportedly considering letting SpaceX join the S&P 500 immediately, bypassing the usual 12-month public trading rule, while FTSE cut its wait to five days.
A track record as a public company aids price discovery by giving markets time to settle on a fair price. In contrast, early index inclusion will create predictable, forced demand from passive funds.
Early price inflation mainly benefits the issuer – in this case, SpaceX – allowing it to sell more shares at a higher price. Index investors risk losing out, being forced to buy high.
It seems the market is not setting the terms of the IPO; the IPO is setting the terms of the market.
