OpenAI CEO Sam Altman’s “no”, delivered at a Paris-based conference, seemed to put an end to Elon Musk’s $97.4 Billion surprise bid.
Experts say that the truth is much more complicated.
Musk’s move, which technically targets OpenAI assets that are nonprofit, may be more than a way to gain control. It could also have been a means of strategically disrupting Altman’s attempts at reshaping OpenAI’s structure.
Altman Plan: From non-profit ideas to for-profit realities
Altman wants to turn OpenAI into an entirely for-profit company. This is seen as a necessity to secure the necessary capital to fund its ambitious AI research.
Musk’s sudden offer, however, throws these plans into disarray, causing legal and financial uncertainty.
Marc Toberoff is the lawyer who represents Musk and his investors. According to him, it’s important that the non-profit organization receives adequate compensation.
Toberoff wrote in a letter that “if Sam Altman, the current OpenAI, Inc. board of directors, are determined to become a for-profit company, then it’s vital the charity is fairly compensated” for the control they take away.
Decoding OpenAI’s structure: The impossible of a direct sale
Experts, however, emphasize that it is not possible to sell OpenAI’s non-profit arm directly.
Jill Horwitz, a UCLA School of Law professor, explained that OpenAI Inc. can only be controlled by another non profit.
Horwitz explained that, while selling the whole organization is not feasible, the assets of a non profit are indeed sellable. However, Altman can’t decide whether or not the organization should sold; that decision rests with the board.
The board and the courts are involved if it is a substantial transaction like the one in question.
Even with a purchase, Musk would not be the king
Musk would not have absolute control even if he managed to purchase OpenAI’s non-profit assets.
Michael Wyland is a governance expert for non-profits. He pointed out that any proceeds from the sale will be used to further the mission of the organization.
Musk would not automatically have control of OpenAI’s board unless his sales agreement explicitly granted him this power.
Musk’s motives are not limited to acquisition.
The long-lasting feud between Altman and himself, which stemmed from Altman’s departure from OpenAI when he failed to take control of the company, as well as a lawsuit claiming a deviance from OpenAI’s original mission suggest that a complex strategy is at play.
Rose Chan Loui is the founding executive director at the Lowell Milken Center for Philanthropy & Nonprofits, UCLA Law. She believes that making a bid sets a “floor”.
OpenAI is forced to bid on the project, which complicates Altman’s plan to transform OpenAI into a company that makes money.
Loui said that according to Delaware Law, where OpenAI’s nonprofit organization was established, and that OpenAI has stated it is considering selling, a company must consider any unsolicited offers from outsiders once it announces it will be doing so.
The disruptive strategy: increasing funding scrutiny and complicating the financing
Tunguz believes Musk’s “complicated everything” from a financial perspective.
Musk also said that OpenAI’s management must find a way to handle Musk’s offer.
It also means that they need to find a way to keep prospective investors satisfied so that their plan to transform the company to a profit-making entity “can be continued in a manner that Attorneys General from California and Delaware understand and can publicly support?”
OpenAI, according to reports, is in the final stage of getting a $40 Billion investment from Japan’s Softbank. This would put the company’s value at around $300 Billion.
Musk’s decision adds uncertainty to OpenAI’s relationship with Microsoft, its main financial supporter.
Tunguz said that regardless of whether or not the bid is successful, OpenAI will have to spend more time understanding these legal issues, working with Attorneys General of the states and there’s friction.
The long-term game is more than a simple takeover.
Steve Jang is the founder and managing director at Kindred Ventures. He sees this situation as a long chess match, given Musk’s position as not only an ex-co-founder of OpenAI with a grudge but also as the owner X.ai, a competitor to OpenAI.
Jang said that the letter “said to OpenAI shareholders, if ever you’re willing to sell I am a buyer.”
Jang told Fortune that Musk probably did not expect the board to approve his bid. “But this does require a review and vote,” said Jang.
It says that we are implying to the market what the OpenAI value is.
Elon Musk’s OpenAI offer sparks investor and legal confusion: is this what he intended? This post may change as new information becomes available
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