Elon Musk Tries to Buy OpenAI for $97 Billion

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In a move that appears designed to draw attention to OpenAI's ongoing transformation rather than secure an acquisition, Elon Musk has submitted a $97.6 billion bid to acquire the nonprofit that controls OpenAI. The bid, backed by prominent investors including Hollywood powerhouse Ari Emanuel and venture firm 8VC, comes at a critical juncture in OpenAI's corporate evolution.

The unsolicited offer adds a new wrinkle to CEO Sam Altman's plans for OpenAI's future, including the company's conversion to a for-profit entity and its ambitious $500 billion AI infrastructure project, known as Stargate. Altman dismissed the offer with characteristic wit, suggesting on X that OpenAI would instead buy Twitter for $9.74 billion, highlighting the ongoing tensions between the two former co-founders.

OpenAI’s Corporate Structure

At the heart of the matter lies OpenAI's unique corporate structure. The organization consists of a nonprofit entity that owns a for-profit subsidiary, created in 2019 after Musk's departure and Altman's assumption of the CEO role. The for-profit arm has served as a vehicle for raising capital from Microsoft and other investors. Altman is now working to transform this subsidiary into a traditional company while spinning out the nonprofit, which would retain an equity stake in the new for-profit entity.

One of the most contentious aspects of this conversion has been the nonprofit's valuation. Current discussions value the nonprofit's stake at approximately $40 billion, despite OpenAI's recent funding rounds valuing the company at $157 billion and rumors of ongoing talks with SoftBank at a potential $340 billion valuation. This significant disparity has raised questions about potential conflicts of interest, given Altman's dual role on both sides of the transaction.

Strategic Implications

Industry analysts suggest Musk's bid, while unlikely to succeed, serves multiple strategic purposes. The offer draws public attention to the valuation gap and governance questions surrounding OpenAI's transformation. It also highlights the departure from the organization's original open-source, safety-focused mission, a shift that has become a point of contention in ongoing legal disputes between Musk and the company.

The situation has particular significance for OpenAI's technical recruitment efforts. The company's historical commitment to open-source principles has been a key differentiator in attracting top engineering talent. As OpenAI moves further from these roots, it could face challenges in competing for engineers who prioritize open-source values, potentially benefiting competitors who maintain stronger alignment with these principles.

Governance Questions

The bid has intensified scrutiny of OpenAI's governance structure. Meta Platforms has already expressed opposition to the conversion plan in a letter to California's attorney general, and OpenAI remains in negotiations with Microsoft and other stakeholders regarding their equity positions in the new structure.

A key complexity in the conversion process involves the nonprofit's duties. The nonprofit was established with primary duties to humanity rather than shareholders, raising questions about how this mission alignment will be maintained in a for-profit structure. The significant gap between the proposed conversion price and market valuations has led to increased discussion about the board's responsibilities in protecting the nonprofit's interests.

Legal Landscape

OpenAI has dismissed Musk's legal claims as baseless, releasing documents in December that they say demonstrate Musk previously supported a for-profit conversion but withdrew when unable to secure control. However, the situation highlights the challenges in converting a nonprofit to a for-profit entity, particularly one of this scale and strategic importance.