OpenAI CEO Responds to Musk’s Offer

Sam Altman, the CEO of OpenAI, promptly dismissed Musk’s proposal, seizing the opportunity for a public rebuttal. In a tongue-in-cheek response on X, he quipped, “no thank you, but we will buy Twitter for $9.74 billion if you want.” Musk, having purchased X (previously known as Twitter) for approximately $44 billion in October 2022, found his past associations with Altman now coming to the fore.

Musk’s involvement with OpenAI dates back to its founding, but their relationship has soured, especially in light of ongoing legal disputes that accuse OpenAI of engaging in anticompetitive practices.

Complicated Implications of Musk’s Bid

Experts in corporate governance suggest that Altman’s rejection of Musk’s $97.4 billion buyout is laden with complexities beyond a simple refusal. OpenAI, initially established as a nonprofit, transitioned to a “capped-profit” model in 2019. This entity is currently the sole controlling entity of the capped-profit OpenAI corporation, which maintains fiduciary duties to its original nonprofit charter. Now, in a bid to secure further funding, OpenAI is on the verge of converting to a traditional for-profit structure, specifically a public benefit corporation.

Musk’s bid seems to introduce hurdles to this transition, potentially inflating the nonprofit’s valuation. Additionally, the attorneys general in California and Delaware have requested more comprehensive information regarding OpenAI’s planned shift to a for-profit entity. The spotlight on this bid compels OpenAI to thoroughly assess outside offers, which could shape the organization’s future trajectory.

While it’s likely that OpenAI’s board will ultimately reject Musk’s bid, the billionaire entrepreneur is laying the groundwork for future legal confrontations. He has also sought to impede OpenAI’s transition to a for-profit corporation through an injunction, indicating that his bid might serve as a strategic counteroffer.

The Board’s Dilemma

For OpenAI’s board, the stakes have increased significantly. Any decision regarding Musk’s acquisition must now be carefully weighed to avoid allegations of undervaluing the nonprofit’s assets, which include invaluable intellectual property derived from groundbreaking research. Stephen Diamond, a legal expert who has previously represented Musk’s adversaries in corporate governance disputes at Tesla, highlighted that Musk is creating complications within the already complex dynamics. He stressed that the nonprofit board’s fiduciary responsibilities must not overlook Musk’s substantial offer, adding layers of accountability to their decision-making process.

OpenAI’s Corporate Structure and Future Funding

Recent reports reveal that OpenAI is gearing up for a substantial funding round, with projections valuing its for-profit division at approximately $260 billion. As part of this restructuring, the nonprofit segment is anticipated to retain a 25% share in OpenAI’s for-profit operations. Musk’s large-scale offer indicates there are interested investors willing to pay a premium for the nonprofit’s operations, which may put further pressure on the board to reassess its strategic approach.

Nevertheless, simply presenting a high-value offer does not guarantee any obligation on OpenAI’s part to accept it. Corporate law empowers existing boards with significant authority to fend off unsolicited takeover proposals. OpenAI could argue that Musk’s proposition constitutes a hostile takeover attempt, especially given the lack of camaraderie between Musk and Altman. The company may further invalidate Musk’s offer by expressing concerns regarding its credibility, as OpenAI is already entrenched in a restructuring process.

Moreover, Musk’s net worth is predominantly linked to the valuation of his Tesla stock, raising questions about whether he possesses the liquidity necessary to finalize such a historic acquisition without considerable backing from investment partners.

Aligning Offers with OpenAI’s Mission

The board may also need to evaluate Musk’s proposition against OpenAI’s foundational objectives, particularly its commitment to ensure that artificial general intelligence serves humanity positively. In light of this dilemma, the board must scrutinize whether Musk’s offer aligns with the nonprofit’s overarching mission, considering the implications for its ethical stance.

Altman’s response on X, while provocative, may not have been fully vetted for legal implications, raising concerns about the appropriateness of his public demeanor given the scrutiny of regulators. A more measured approach might be required to ensure compliance and maintain the nonprofit’s integrity in the eyes of the law.

The Impact of Musk’s Offer on OpenAI’s Valuation

OpenAI’s board is likely to favor Altman, particularly as many directors were appointed after Altman’s tumultuous experience of being briefly dismissed and subsequently rehired in late 2023. Regardless, Musk’s audacious bid is already influencing the market perception of OpenAI’s nonprofit assets, potentially compelling the organization to seek more funding than initially planned, which could complicate discussions with existing investors.

Key stakeholders, including tech giant Microsoft, may find their equity in the for-profit arm diluted as a result of Musk’s intervention, complicating negotiations and future funding arrangements. Many believe that Altman has been tirelessly engaging shareholders to devise a fair compensation strategy for the nonprofit, which may now face new hurdles due to Musk’s bold move.

In summary, Musk’s $97.4 billion offer has significantly complicated OpenAI’s already ambitious plans for corporate restructuring and fundraising, highlighting the intertwined relationship between investor interests and the organization’s mission.