We have spent much of the past 24 hours on the telephone trying to get to the bottom of Elon Musk’s hostile bid for Sam Altman’s OpenAI. It was a development in their corporate battle (or soap opera) that few could have seen coming. Altman, who is in Paris at an A.I. summit, hadn’t even seen the offer before rejecting it out of hand.
But what does it mean to make a hostile bid for a nonprofit? How do board members actually balance any fiduciary duties they owe to investors in a for-profit subsidiary versus their institution’s mission? The man in the middle of all of these questions is Bret Taylor, the board’s chair. Taylor has more experience dealing with a hostile bid by Musk than most: he was the chair of Twitter’s board when Musk bought it. We break it all down below. (Was this newsletter forwarded to you? Sign up here.) Musk’s $97 billion spoiler effort The latest twist in the OpenAI saga involves, of course, Elon Musk. A consortium led by the entrepreneur put a $97.4 billion offer on the table to essentially buy control of OpenAI. It’s just the latest battle in the escalating fight between Musk and Sam Altman, two of Silicon Valley’s biggest figures. A sign of how things are going: Altman rejected the offer on X, writing, “no thank you but we will buy twitter for $9.74 billion if you want.” Musk replied, “Swindler.” The blockbuster bid complicates things for OpenAI. The start-up is about to close a $40 billion fund-raising deal with SoftBank at a valuation of $300 billion. Altman also is trying to pull off a much-needed plan to convert the nonprofit OpenAI into a for-profit entity. A question of the OpenAI board’s duties: Its directors don’t have any fiduciary responsibility to maximize returns, since it’s a charity. Board members include Bret Taylor, who sparred with Musk over his purchase of Twitter, and Larry Summers, the former Treasury secretary, whom Musk criticized just yesterday. But that’s not the real problem. Musk appears to be trying to force Altman into potentially paying more to transform OpenAI into a for-profit company. Billions are on the line. A recap: Musk and Altman co-founded OpenAI in 2015 as a charitable A.I. lab, but they’ve been openly feuding for years. Musk filed a series of legal complaints and has accused Altman of straying from the nonprofit’s mission. Even though OpenAI began as a nonprofit, it created a for-profit subsidiary to allow it to raise money. The start-up’s investors pushed to restructure the organization into a for-profit entity so that it would have fewer control complications. Altman has two years to make this change, or OpenAI will have to return the money it has raised. Here’s how the conversion would work. Altman has to compensate OpenAI’s nonprofit division, which controls the money-making division. He could pay a one-time fee or give it a minority stake in the new for-profit business. But Musk’s bid makes this more difficult. Whatever internal discussions Altman has had about the value of OpenAI’s nonprofit entity, Musk just set a floor price — in public. It also puts added pressure on any regulatory review. To gain approval, any deal Altman works out will have to be seen as equal to or better than Musk’s offer.“If this is a legitimate bid — and they think it’s reasonably likely that he can come up with the money — that starts to look like the fair price of the assets,” Samuel Brunson, associate dean for academic affairs at Loyola University Chicago School of Law, told DealBook’s Lauren Hirsch.But OpenAI has some defenses. It can question the legitimacy of Musk’s bid. (Remember that Musk tried to walk away from his offer to buy Twitter.) OpenAI could also challenge Musk on whether he has the funds. Musk’s wealth is largely tied to his Tesla stock, which means he may not have billions of his own cash to easily tap. Musk’s bid is partially being backed by his own A.I. venture, xAI, which was last valued at as much as $40 billion. Altman threw another jab this morning. Asked on Bloomberg Television this morning if Musk’s move was driven by insecurity about xAI’s standing, the OpenAI chief said, “Probably his whole life is from a position of insecurity.” Altman added, “I don’t think he’s a happy guy. I feel for him.”