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 exterior buyers, 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 thank you, but we will buy Twitter for $9.74 billion if you want,” Altman wrote in a submit on X simply hours after stories emerged of Musk’s supply for OpenAI. Musk owns X, the social community previously generally known 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 the moment concerned in a lawsuit that alleges that OpenAI engaged in anticompetitive habits, amongst different issues.
However Altman’s rejection a $97.4 billion takeover supply is extra sophisticated than simply saying “no thanks,” in keeping with company governance specialists 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 controlling shareholder of the capped-profit OpenAI company, which retains formal fiduciary duty to the nonprofit’s constitution.
OpenAI is now within the means of restructuring – this time to a conventional for-profit firm, particularly a public profit company – in a bid to lift way 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 together with his bid.
Delaware and California‘s attorneys basic have requested extra info from the ChatGPT maker about its plans to transform to a for-profit profit company. The scenario additionally forces it to contemplate exterior bids significantly.
OpenAI’s board will virtually definitely refuse the bid, however Musk has been setting the stage for future authorized and regulatory battles. He’s already trying to stall OpenAI’s for-profit conversion through an injunction, as an illustration. The bid seems to be an alternate supply, of types.
Now, OpenAI’s board should reveal that it’s not underselling OpenAI’s nonprofit by handing the nonprofit’s property, 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 something OpenAI has to pay attention to.”
OpenAI is claimed to be gearing up for a funding spherical that will worth its for-profit arm at $260 billion. The Info stories that OpenAI’s nonprofit is slated to get a 25% stake in OpenAI’s for-profit.
Along with his bid, Musk has signaled there’s a minimum of one group of buyers keen to pay a large premium for OpenAI’s nonprofit wing. That places the board of administrators in a decent spot.
Grounds for rejection
Nonetheless, simply because Musk threw out an eye-popping supply doesn’t imply that OpenAI’s nonprofit has to just accept.
Company legislation offers super authority to incumbent boards to guard in opposition to unsolicited takeover bids, in keeping 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 very best of buddies.
The corporate may additionally argue that Musk’s supply isn’t credible as a result of OpenAI is already within the midst of a company restructuring course of.
One other method OpenAI may take could be difficult Musk on whether or not he has the funds. As The New York Instances notes, Musk’s wealth is basically tied to his Tesla inventory, which means that Musk’s funding companions must provide a lot of the $97.4 billion complete.
OpenAI’s board could have to evaluate Musk’s supply to totally asses whether or not it aligns with the nonprofit’s mission, not simply particular monetary or strategic objectives, in keeping with Scott Curran, the previous Normal Counsel to the Clinton Basis. Meaning Musk’s supply could possibly be weighed in opposition to OpenAI’s mission: “to ensure that artificial general intelligence – AI systems that are generally smarter than humans – benefits all of humanity.”
“When Altman posted that response [on X], that was probably done without legal guidance,” Yosifon stated. “It’s not good for a regulator to see that kind of dismissive, knee-jerk tweet.”
Elevating the worth for OpenAI property
The board is prone to aspect with Altman. Almost 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 elevate the potential market worth of the OpenAI nonprofit’s property. That would power 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 buyers within the for-profit arm, together with main companions akin to Microsoft.
That’s certain to anger Altman, who’s been working with buyers for months to find out how you can pretty compensate the nonprofit.
The gist is: OpenAI’s company restructuring plans simply received extra advanced.
