SpaceX’s Upcoming IPO: Potential $11 Billion Boost Explained
Elon Musk’s aerospace company, SpaceX, raised $75 billion by selling 555.6 million shares, approximately 5% of its stock, during its market debut on Friday. The company may secure billions more in the coming weeks through a mechanism known as a greenshoe option. This option allows Morgan Stanley, the stabilization agent for the listing, to purchase additional shares at the IPO price of $135 each for up to 30 days after trading begins.
If fully exercised, Morgan Stanley could acquire around 83 million more shares, bringing the total number of shares sold to 638.9 million and increasing the total amount raised by an additional $11.2 billion, according to a Reuters report. Unlike the shares already sold to investors, these additional shares have not yet been issued by SpaceX. The process requires underwriters to first sell the stock through a short position in the market.
The decision on whether to buy shares from SpaceX or the open market depends on the stock’s performance post-listing. If the stock trades above its IPO price, underwriters can exercise the greenshoe option and purchase the extra shares directly from the company. This allows SpaceX to raise more capital while covering their short position. Conversely, if the stock falls below the offer price, underwriters are more likely to buy shares in the open market to support the stock and reduce volatility during early trading.
The greenshoe option, formally known as an over-allotment option, has been a longstanding tool in major public offerings to promote orderly trading. Its origins trace back to Green Shoe Manufacturing, which first used the structure during its 1960 IPO. The option has influenced some of the largest listings globally. For instance, in Alibaba’s 2014 debut, strong demand led to the exercise of the entire 15% greenshoe option, boosting total proceeds to around $25 billion. In contrast, Uber’s 2019 debut saw underwriters buy shares directly from the market as the stock fell below its offer price, resulting in a 7% decline on its first trading day.
For SpaceX, the next few weeks will determine whether its IPO remains a $75 billion fundraising event or expands further through the greenshoe option.
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