Elon Musk Shoves Another Chaos Wrench in OpenAI's Gears
Jessica Toonkel & Berber Jin
Clearly not busy enough, Elon Musk is now trying to take on a new challenge: buying a non-profit. Specifically, a certain one that he knows all too well:
A consortium of investors led by Elon Musk is offering $97.4 billion to buy the nonprofit that controls OpenAI, upping the stakes in his battle with Sam Altman over the company behind ChatGPT.
Musk’s attorney, Marc Toberoff, said he submitted the bid to OpenAI’s board of directors Monday.
I would call this latest twist shocking except that a) nothing involving Musk is shocking anymore b) I more or less predicted it. Exactly one month ago, in noting that on top of suing OpenAI and filing an injunction to stop a transition to a for-profit entity, Musk was now trying to get the courts in California (where OpenAI is based) and Delaware (where OpenAI is incorporated) to open up an auction to properly value the non-profit ahead of allowing OpenAI to become a for-profit entity. As I specifically highlighted in my blurb:
Also fun: this would presumably allow Musk himself to bid on the stake!
And here we are. While as far as I know, neither state has yet weighed in on the concept of an auction for the asset, Musk essentially seems to be trying to force their hands here. And while I'm not a lawyer, allow me to play one on the internet just for the purposes of gaming this out a bit.
Because OpenAI famously has no actual equity shareholders right now, the board is the only entity that controls the company. The members that fired Sam Altman in 2023 have mostly been replaced (except for Adam D'Angelo) and the board has been greatly expanded to 10 people now, chaired by Bret Taylor – and yes, now featuring Altman in a seat. He obviously doesn't want to sell anything to Musk, but because of the transition discussions, the board is likely in a trickier spot than if they were just content to be a non-profit. In that case, they could just say something like "no, we're a non-profit, we're not for sale". But now, because the non-profit is going to need to be compensated for the future for-profit taking much of the value created during the time as a non-profit it's... complicated. Again, presumably! (And ChatGPT itself agrees with me.)
So if Elon Musk and his backers are offering (an oddly specific) $97.4B, the board will presumably have to weigh if that's a fair value for the entity and if it's a better deal to take than a piece of the future for-profit. In that same blurb, I also wrote:
I've tried to guesstimate how I thought the equity might be carved up in the past. Total guess, but if the non-profit gets 25% of the equity, that would be worth nearly $40B at OpenAI's current $157B valuation. Presuming that valuation goes up over the next year, we're probably looking at a "fair" price over $50B (again, in my estimate). Also note the concern from the Musk team about Delaware overseeing this process, since that's also the state which has blocked his Tesla pay package.
And given the reports of a new $40B round that would value OpenAI at $300B, my guesstimated price goes to $75B. Musk's offer would be a $22.4B premium on top of that (made up number).
If nothing else, it's seemingly attempting to set a floor for the value of the non-profit. That means OpenAI itself will have to be valued even higher to hit the mark (again, in my total guess) or the other would-be shareholders would have to be diluted further. If Musk is valuing the non-profit at $97.4B at the new $300B price, he's suggesting the entity should hold 32.5% of the equity. (If he's using the last round's price, he's suggesting the non-profit should own 62%!)
Anyway, maybe OpenAI's board is able to tell Musk to pound sand here, but I don't think it will be as straightforward as just tweeting it. If nothing else, it's a very Muskian attempt to further delay and cause chaos in the transition process. Someone really didn't like that 'Stargate' announcement, I guess. (Wonder why.)
One more thing: Beyond the money, Musk is clearly making the open/safety case for his intentions in such a transaction. There's a whiff of the Twitter takeover here, of course, but again, it's potentially more important legally here because of the transition.
“It’s time for OpenAI to return to the open-source, safety-focused force for good it once was,” Musk said in a statement provided by Toberoff. “We will make sure that happens.”
And it may rally others to support his case. Making an open OpenAI is all the rage right now – including, perhaps, within OpenAI itself... And we haven't even talked about the political element of all this.
A lot of conflicts. Even more interest. And just when you thought a feud couldn’t possibly get any bigger than Kendrick Lamar performing “Not Like Us” at the Super Bowl…
Update February 11, 2025:
Ina Fried was able to pin down Altman at the AI summit in Paris, who gave some fun quotes while smacking down Musk's "offer":
"There's been like versions of Elon trying to, you know, somehow take control of OpenAI for a long time, so, it's like, okay, here's this week's episode," Altman told Axios.
And:
"OpenAI is not for sale. OpenAI's mission is not for sale - to say nothing of the fact that, like, a competitor who is not able to beat us in the market and you know, instead is just trying to say, like, 'I'm gonna buy this" with total disregard for the mission is a likely path there."
He also noted that there's a lot of "misreporting" on what the OpenAI board is planning/doing with regard to the for-profit transition, but naturally didn't elaborate beyond noting that it's "complicated".
Meanwhile, WSJ has extended their reporting along the lines of what I hit upon above: that Musk's intentions with the bid – beyond chaos – may be to muck up the way the non-profit will be valued in the transition. While he'd undoubtedly hope to derail the process, at the very least, it will probably slow it down and potentially make it more expensive for everyone involved...
Update February 12, 2025:
In a court filing, the Musk-led group is now saying it will withdraw the bid if the conversion to a for-profit entity is halted and the non-profit's million is preserved. But if the process proceeds, the offer stands. So it's pretty clear what the intention is here...
Update February 14, 2025:
Two more things in this ongoing story. First, OpenAI's board has formally and "unanimously" rejected the offer. That does not change the fact that the offer was made though, so it may yet come into play in the value discussions for the non-profit entity in a for-profit conversion.
Related to that, the comments Ari Emanuel, Endeavor's CEO who is a part of the group making the offer, made on stage at the Freakonomics Radio Live show this week, are getting headlines for the Sam vs. Elon "unhappy person" angle – calling Altman a "phony" – but far more interesting are his comments on the actual offer:
"Altman and the charity’s Board he controls are floating and furthering all sorts of miscommunications and misconceptions, so let me be crystal clear: We are not proposing to buy the charity, OpenAI, Inc. We are proposing to buy the charity’s majority share (call it 51%) of Sam and Microsoft’s for-profit OpenAI enterprise. The charity would get the $97.4 billion."
This states that they're, in fact, not trying to buy the non-profit, but instead buy out the non-profit's share of the arm that was set up so Microsoft (and now many others) could invest. While he's clearly not sure of the exact ownership the non-profit holds, hence the "call it 51%", he clearly does believe it's a majority share. And that's what would allow the group to effectively take over control of the entire operation.
Hard to tell if Emanuel is revealing something not known to the public here or if he's just not fully in command of the facts. He may be thinking the non-profit has 51% control because of the (old) reports that Microsoft "controls" 49% – but obviously there are many more investors now. So unless the original structure (which was technically a right to future profits, not actual equity, of course) was such that future funding would only dilute Microsoft and not the non-profit's holdings, it's unclear how this math works. Or perhaps the offer would be to the non-profit and other investors in order to buy up a majority share? But they sent it to the non-profit board to get them on, um, board, first?
I realize this all may just be for show, as a way to boost the equity OpenAI may have to dish out to the non-profit and/or imperiling the entire for-profit conversation. Still, I'm trying to figure out the actual strategy of the offer itself. Surely it can't just be random numbers thrown out there, right? Right?!
Emanuel's statement also implies that the group is valuing the entity at just shy of $200B (again based off of a just north of 50% ownership target). That's higher than OpenAI's current $157B valuation, but obviously below the $300B they're apparently closing in on with SoftBank. But then Emanuel also said:
"Sam and his Board are offering $30 billion. $97.4 billion is more than $30 billion. They have massive equity in the for-profit AI group and are on the board of the non-profit. They are sort of double-dealing here."
Also unclear where the $30B number is coming from – is he sharing inside information or just a guesstimate on what they'll offer to the non-profit (likely in terms of equity value in the new entity) in the conversion? Using his 51% math, that would obviously imply a valuation of just over $60B, which is obviously far below the current valuation. Or perhaps he's highlighting how much OpenAI intends to cut the non-profit's equity stake in the conversion? Again, hard to know for sure, but assuming he's not just throwing out completely made-up numbers, there's something to be gleaned in the group's strategy, if nothing else.
It's still not clear where the very exact $97.4B offer number comes from...