Elon Musk and a group of investors made an unsolicited bid to buy the assets of the nonprofit that controls OpenAI, complicating the AI powerhouse’s future plans.
What’s new: Musk submitted a $97.4 billion offer to acquire the assets of the nonprofit OpenAI Inc. CEO Sam Altman and the company’s board of directors swiftly rejected it, and Altman publicly mocked Musk by offering to buy Twitter for $9.74 billion (one-tenth of Musk’s bid and less than one-quarter the price he paid for the social network). OpenAI’s board reaffirmed its control over the company’s direction, signaling that it does not intend to cede governance to outside investors.
How it works: OpenAI was founded as a nonprofit in 2015, but since 2019 it has operated under an unusual structure in which the nonprofit board controls the for-profit entity that develops and commercializes AI models. This setup allows the board to maintain the company’s original mission — developing AI for the benefit of humanity — rather than solely maximizing shareholder value. However, driven by the need for massive investments in infrastructure and talent, OpenAI is considering a new for-profit structure that would allow external investors to own more of the company. The high offer by Musk — who, as CEO of xAI, competes with OpenAI — could interfere with that plan.
- The board has a legal duty to consider both OpenAI’s original mission and credible offers for its assets. While it rejected Musk’s bid, it must ensure that any restructuring aligns with its charter and does not unfairly disregard potential buyers.
- According to the current plan, the new for-profit entity would purchase the nonprofit’s assets. Musk’s bid suggests that the nonprofit’s assets alone are worth at least $97.4 billion, more than 60 percent of the entire organization’s valuation in late 2024. That could dramatically boost the cost of the planned restructuring.
- Some experts believe that Musk’s offer is less about acquiring OpenAI than driving up its valuation, which could dilute the equity of new investors in the new for-profit entity. By introducing a competitive bid, he may be attempting to make OpenAI’s restructuring more expensive or complicated.
- Musk has indicated he is willing to negotiate, effectively turning OpenAI’s transition into a bidding war. Altman stated that this could be a deliberate effort to “slow down” OpenAI and that he wished Musk would compete by building a better product instead.
Behind the news: Musk was one of OpenAI’s earliest investors, but he departed in 2018 after disagreements over direction and control of the organization. His bid follows a lawsuit against OpenAI, in which he claims the company abandoned its nonprofit mission in favor of profit. OpenAI said that Musk’s bid contradicts his legal claims and suggests that the lawsuit should be dismissed. Since then, Musk has stated that he would drop the lawsuit if OpenAI remains a nonprofit.
Why it matters: OpenAI is a premier AI company, and its activities affect virtually everyone in the field by supplying tools, technology, or inspiration. Musk’s xAI is a direct competitor, and his bid, whether it’s sincere or tactical, unsettles OpenAI’s plans. Even if OpenAI moves forward as planned, Musk’s actions likely will have made the process more expensive and potentially invite closer scrutiny of the company’s actions.
We’re thinking: There’s ample precedence for non-profits spinning out for-profit entities. For example, non-profit universities typically create intellectual property that forms the basis of for-profit startups. The university might retain a modest stake, and this is viewed as consistent with its non-profit mission. This isn’t a perfect analogy, since OpenAI does little besides operating its AI business, but we hope the company finds a path forward that allows it to serve users, rewards its employees for their contributions, and honors its non-profit charter.