Elon Musk’s airline raised a whopping $75 billion by selling 555.6 million shares, or about 5% of its shares, in its long-awaited market debut on Friday. However, in the coming weeks, SpaceX could bring in billions more!The mechanism, known as a Greenshoe option, gives Morgan Stanley, the stabilization agent for the listing, the right to purchase additional shares of SpaceX at the IPO price of $135 per share for up to 30 days after the start of trading. If the activity is fully carried out, the bank can acquire about 83 million additional shares of the company.This would bring the total number of shares sold to 638.9 million and increase the amount raised by another $11.2 billion, according to a Reuters report.Unlike the shares already offered to investors, these additional shares have not yet been issued by SpaceX. Instead, the process requires underwriters to first sell shares through a short position in the market. They can then either buy shares from SpaceX at the original offer price or buy them back on the open market, depending on the stock’s performance.The path taken depends largely on where the share price moves after listing.If the stock trades above its IPO price, the underwriters can exercise the green shoe option and purchase additional shares directly from the company, enabling the issuer to raise additional capital while covering its short position. Reuters reported that strong demand from investors could translate into a larger fundraising for the newly listed company.
If the stock falls below the offer price, underwriters will likely purchase the shares on the open market instead. This allows them to close out their short positions while helping to support the stock and reduce volatility during the early stages of trading.The green shoe, officially called an over-allotment option, has long been used in major public offerings as a tool to encourage more regulated trading. Its origins go back to Green Shoe Manufacturing, which became the first company to use this structure during an initial public offering in 1960.Its use has formed some of the most prominent lists in the world.In Alibaba’s debut in 2014, high demand pushed the stock 38% above its bid price of $68 on its first day of trading. The underwriters then exercised their full 15% green shoe option, purchasing an additional 48 million shares of the company at the IPO price. The move boosted total listing proceeds to about $25 billion, making it the largest IPO ever at the time.Five years later, the Uber experience has evolved differently. After pricing its shares at $45, the ride-hailing company’s stock fell below that level amid concerns about its path to profitability and broader market weakness. Instead of purchasing additional shares of Uber, underwriters entered the market to purchase shares directly, with the aim of relieving selling pressure. However, Uber shares ended their first trading session down 7%.For SpaceX, the next few weeks will determine whether its historic IPO remains a $75 billion fundraising event or grows larger by exercising the Greenshoe option.