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One of the most complex deals in history was already in process. And then on Monday afternoon Elon Musk arrived. A Musk-led consortium said it would pay precisely $97.4bn for OpenAI, the artificial intelligence start-up. But the bounty is not for the operating business — it is for the non-profit vehicle that at present manages the OpenAI enterprise.
Musk’s rival Sam Altman — chief executive of OpenAI — is in the midst of a complicated negotiation to collapse the non-profit and for-profit entities into a single structure. Such a streamlining is ostensibly necessary to attract the further tens of billions of investment needed to build and commercialise the large language model. A current fundraising round is set to value OpenAI at $260bn.
In simpler times, a decade or so ago, the OpenAI non-profit/for-profit distinction was an idealistic nod, aiming to ensure that artificial intelligence was managed responsibly and “for the benefit of humanity”. But the technology turned out to be so good that the org chart was spoiling the value creation opportunity. Adding to the issue, Microsoft had invested $13bn in OpenAI but its profit stream was structured to be capped at a pre-specified return.
The form and the financing of the new bid from Musk and his co-investors — cash, stock, something else — is so far unknown. And the value he has ascribed is something like three times greater than what was expected to be paid for the non-profit piece of OpenAI.
The profit-seeking OpenAI enterprise is structured as a limited liability company that does not come with traditional fiduciary duties attached. The non-profit arm, which has raised more than $100mn in donations, is supposed to uphold its mission and its board members include the likes of economist Lawrence Summers and dealmaker Adebayo Ogunlesi.
The ongoing operatic rivalry between Musk and Altman remains a major subtext. Musk had been involved in OpenAI in its early days and stands to make money when the non-profit is bought out. He also has his own AI venture, xAI, which makes his obsession with OpenAI — including a previously filed lawsuit about the restructuring — look curious.
Given the LLC and non-profit status of the OpenAI entities, they do not have to engage with the Musk bid, or any other that they may receive, if they do not wish to. Altman, for his part, responded tartly on X on Monday, that he would instead be willing to buy X from Musk for $9.74bn, a tenth of the Musk OpenAI offer and a fraction of the $44bn Musk paid for Twitter.
Coming to a deal on the OpenAI restructuring was never going to be simple. Musk’s gatecrashing at a minimum will now add a bright spotlight on the negotiations and, specifically, how much of a hard bargain the non-profit is going to drive.
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