SpaceX wants a fee cut from IPO bankers targeting US$500 million windfall

SpaceX is targeting a valuation of about US$1.8 trillion. At that size, a US$75 billion fundraising would easily eclipse the previous IPO record. Photo by Mario Tama/Getty Images

Article content

Elon Musk’s SpaceX is negotiating to pay razor-thin fees to Wall Street firms handling its IPO — but banks are still likely to rake in about US$500 million from the record-setting market debut.

Article content

Musk’s space and artificial-intelligence conglomerate is negotiating to pay less than 0.75 per cent for the US$75 billion it aims to drum up in an initial public offering this month, according to people with knowledge of the matter. Even at that low spread, it will likely amount to one of the biggest fee events ever for Wall Street firms that arrange public listings.

Article content

Article content

Article content

The lead banks — Goldman Sachs Group Inc. and Morgan Stanley — are positioned to take in a bigger share of the fee pool than the other 21 brokers involved. The figures represent the base fee being charged to SpaceX and don’t factor in other discretionary incentives, the people said, asking not to be identified discussing non-public information.

Article content

Article content

Representatives for SpaceX, Goldman and Morgan Stanley declined to comment.

Article content

Investment banks typically charge four per cent to seven per cent on IPOs, which raise less than US$1 billion on average. That fee percentage drops sharply for giant debuts, when banks corral investors to hand over billions of dollars at once. But even in those cases, it’s usually more than one per cent.

Article content

The slim margin that banks are offering Musk has implications for a slate of blockbuster IPOs in the works for this year. That could force investors and analysts to temper expectations for Wall Street’s earnings as OpenAI and Anthropic PBC also lay the groundwork to tap equity markets in the months ahead.

Article content

One of the lowest spreads ever charged for a mega IPO was when banks negotiated a 0.75 per cent fee with the United States government for General Motors Co. in 2010. Back then, Wall Street was desperate to rebuild public sentiment after taking taxpayer-funded bailouts in the financial crisis. There was also concern about a backlash if they made a juicy profit. At the time, the U.S. government owned a majority of the automaker after saving that industry, too.

Article content

Article content

Chinese internet giant Alibaba Group Holding Ltd., which raised US$25 billion in its 2014 IPO, paid about US$300 million to underwriters, including performance fees.

Article content

Even Saudi Aramco, famously tightfisted on handing fees to banks, was expected to pay over one per cent when it was pursuing an international listing. That pool was cut sharply after Saudi Arabia sidelined global banks advising on Aramco’s IPO and pared it back to a mainly domestic affair.

Article content

SpaceX is targeting a valuation of about US$1.8 trillion, Bloomberg previously reported. At that size, a US$75 billion fundraising would easily eclipse the previous IPO record. The company will reserve up to five per cent of shares from the offering for certain employees and friends and family of its executive officers, according to a filing Monday.

Article content

Meanwhile, Anthropic confidentially submitted draft paperwork for a public listing in a bid to leapfrog longtime rival OpenAI in the race to stock market this year. And Google parent Alphabet Inc. said it’s raising US$80 billion through a package of equity offerings.

Article content

Altogether, the massive sales may test how much Wall Street bankers can raise so quickly from the public.

Article content

—With assistance from Todd Gillespie.

Article content

Article content

Article content