On Monday, Elon Musk, the world’s richest man, supplied to purchase the nonprofit that successfully governs OpenAI for $97.4 billion. The unsolicited buyout could be financed by Musk’s AI firm, xAI, and a consortium of out of doors traders, per a letter despatched to California and Delaware’s attorneys basic.
OpenAI CEO Sam Altman shortly dismissed Musk’s bid, and took it as an opportunity to publicly dunk on him.
“No thanks, however we are going to purchase Twitter for $9.74 billion in order for you,” Altman wrote in a post on X simply hours after reviews emerged of Musk’s provide for OpenAI. Musk owns X, the social community previously referred to as Twitter; he paid roughly $44 billion for it in October 2022.
The 2 have a historical past. Musk is an OpenAI co-founder, and each he and xAI are at present concerned in a lawsuit that alleges that OpenAI engaged in anticompetitive conduct, amongst different issues.
However Altman’s rejection a $97.4 billion takeover provide is extra sophisticated than simply saying “no thanks,” in line with company governance consultants who spoke with TechCrunch.
Stalling OpenAI’s non-profit conversion
For background, OpenAI was based as a nonprofit earlier than transitioning to a “capped-profit” construction in 2019. The nonprofit is the only real controlling shareholder of the capped-profit OpenAI company, which retains formal fiduciary duty to the nonprofit’s constitution.
OpenAI is now within the technique of restructuring – this time to a conventional for-profit firm, particularly a public profit company – in a bid to lift rather more capital. However Musk – who’s infamous for drowning his enemies in authorized troubles – could have stalled the transition and raised the worth of OpenAI’s nonprofit along with his bid.
Delaware and California‘s attorneys basic have requested extra data from the ChatGPT maker about its plans to transform to a for-profit profit company. The scenario additionally forces it to think about outdoors bids severely.
OpenAI’s board will almost certainly refuse the bid, however Musk has been setting the stage for future authorized and regulatory battles. He’s already making an attempt to stall OpenAI’s for-profit conversion through an injunction, as an illustration. The bid seems to be an alternate provide, of kinds.
Now, OpenAI’s board must exhibit that it’s not underselling OpenAI’s nonprofit by handing the nonprofit’s belongings, together with IP from OpenAI’s proprietary analysis, to an insider (e.g. Sam Altman) for a steep low cost.
“Musk is throwing a spanner into the works,” stated Stephen Diamond, a lawyer who represented Musk’s opponents in company governance battles at Tesla, in an interview with TechCrunch. “He’s exploiting the fiduciary obligation of the nonprofit board to not undersell the asset. [Musk’s bid] is one thing OpenAI has to concentrate to.”
OpenAI is claimed to be gearing up for a funding spherical that may value its for-profit arm at $260 billion. The Info reviews that OpenAI’s nonprofit is slated to get a 25% stake in OpenAI’s for-profit.
Together with his bid, Musk has signaled there’s at the least one group of traders prepared to pay a large premium for OpenAI’s nonprofit wing. That places the board of administrators in a good spot.
Grounds for rejection
Nonetheless, simply because Musk threw out an eye-popping provide doesn’t imply that OpenAI’s nonprofit has to simply accept.
Company legislation provides large authority to incumbent boards to guard in opposition to unsolicited takeover bids, in line with David Yosifon, a Santa Clara College professor of company governance legislation.
OpenAI may make the case that Musk’s bid is a hostile takeover try provided that Musk and Altman aren’t the best of friends.
The corporate may additionally argue that Musk’s provide isn’t credible as a result of OpenAI is already within the midst of a company restructuring course of.
One other strategy OpenAI may take could be difficult Musk on whether or not he has the funds. As The New York Times notes, Musk’s wealth is essentially tied to his Tesla inventory, that means that Musk’s funding companions must provide a lot of the $97.4 billion complete.
OpenAI’s board could must evaluation Musk’s provide to totally asses whether or not it aligns with the nonprofit’s mission, not simply particular monetary or strategic targets, in line with Scott Curran, the previous Basic Counsel to the Clinton Basis. Which means Musk’s provide might be weighed in opposition to OpenAI’s mission: “to make sure that synthetic basic intelligence – AI programs which can be typically smarter than people – advantages all of humanity.”
“When Altman posted that response [on X], that was in all probability performed with out authorized steerage,” Yosifon stated. “It’s not good for a regulator to see that form of dismissive, knee-jerk tweet.”
Elevating the worth for OpenAI belongings
The board is prone to facet with Altman. Practically all the administrators joined after Altman was briefly fired, then rehired, by the nonprofit’s board in late 2023. Altman himself can also be a board member.
If nothing else, Musk’s bid could increase the potential market worth of the OpenAI nonprofit’s belongings. That would drive OpenAI to lift extra capital than it initially anticipated, and complicate talks with the startup’s present backers. It may additionally dilute the worth of stakes held by OpenAI traders within the for-profit arm, together with main companions similar to Microsoft.
That’s positive to anger Altman, who’s been working with traders for months to find out the best way to pretty compensate the nonprofit.
The gist is: OpenAI’s company restructuring plans simply obtained extra complicated.