Musk's Bid for OpenAI is Brilliant
Throwing a wrench into the machine
People are missing why Musk just bid for OpenAI and even the headlines are wrong about what he bid for.
See, OpenAI is currently a capped for-profit entity owned and controlled mostly by a non-profit. Altman and OpenAI’s other investors have been planning to spin off the for-profit.
To do this legally, the for-profit entity must purchase itself at fair market value from the non-profit. Despite being recently valued at over $150B, OpenAI was planning on paying the non-profit only $40 billion. This is Altman self dealing since he controls the board of the non-profit and a criminally low price for the for-profit side of the business.
What Musk did was make an offer to the non-profit to buy the for profit side of OpenAI for $97 billion, which if you hand’t noticed is significantly higher than $40B. They also said they would match and beat any other offer made.
I am not as familiar with fiduciary duties on non-profit boards but I assume they still have to act in their best interests which means they now cannot sell the for-profit for less than $97B since they have a solid offer on the table.
What this does is make Altman’s plans to convert significantly more expensive and difficult, especially with Musk saying they will match any offer.
While the board may not be forced to sell, they certainly cannot sell for a much lower price than they could otherwise get, lest they all get sued for the rest of their lives.
Musk’s move is brilliant since it puts OpenAI in a terrible position. They may not be able to follow through with spinning off as a for-profit as planned which will make raising funds in the future much more difficult. Musk has put Altman in a serious bind.
Even more fascinating was Altman gave an interview this morning regarding the offer. In it, he made some pretty insulting remarks about Elon…and never once discussed the substantive effects of the offer. To me, it’s obvious that he knows he’s in a really bad spot (and has been for a while now).
This reminds me of Barbarians at the Gate which if you haven’t read it is a fascinating book. Corporations have many laws that dictate how they must act and Altman and OpenAI’s board now have to move very carefully.