Musk's $97.4 Bn Offer to Purchase OpenAI is Unanimously Rejected by the Board

The board of directors of OpenAI has formally rejected a $97.4 billion offer from a group of investors led by Elon Musk to acquire the nonprofit that controls the artificial intelligence company.

"OpenAI is not for sale, and the board has unanimously rejected Mr. Musk's latest attempt to disrupt his competition," said Bret Taylor, OpenAI's chairman, in a statement released Friday on behalf of the board. 

Musk, who co-founded OpenAI a decade ago before launching a competing AI startup, enlisted a group of wealthy allies in an unsolicited cash bid to acquire the nonprofit's assets. Other supporters of the proposal included Valor Equity Partners, Baron Capital, Atreides Management, Vy Capital, Joe Lonsdale's 8VC, and Ari Emanuel's investment fund. Musk stated that he hoped to restore OpenAI to "the open-source, safety-focused force for good that it once was."

The offer was quickly rebuffed earlier this week by OpenAI CEO Sam Altman, who called it a competitor's attempt to "slow us down" and emphasized that the company is "not for sale." Andrew Nussbaum, a counsel to the OpenAI board, previously stated in a statement that OpenAI was not looking to sell and that the directors' "sole fiduciary duty" was to fulfill the company's mission of developing more powerful, hypothetical AI systems known as artificial general intelligence (AGI) that benefit humans. "Respectfully," he replied; "it is not up to a competitor to decide what is in the best interests of OpenAI's mission." 

Marc Toberoff, a lawyer for the Musk-led investment consortium, said the board's rejection of the bid is "no surprise" because Altman and Taylor had made statements criticizing the bid before the board reviewed it.

"Of course they're selling the charity's assets (control over the for-profit enterprise). That is what their "reorganization" is all about. "They're just selling it to themselves for a fraction of what Musk has offered," Toberoff said in a statement on Friday. "Will someone please explain how that benefits 'all of humanity'?"

Musk has repeatedly attempted to derail OpenAI's plans to restructure as a more traditional for-profit business. The billionaire filed two lawsuits against OpenAI for allegedly violating its founding principles, and he asked a court to halt the ChatGPT maker's restructuring efforts. A judge recently stated that she was hesitant to immediately issue such an order in a case pitting "billionaires versus billionaires."

In a court filing following Musk's bid, OpenAI argued that Musk's offer to buy the company undermines the very claim at the heart of his lawsuit, which is that its assets cannot be "transferred away" for "private gain." Musk's lawyers stated in a subsequent legal ruling that Musk would withdraw his bid if OpenAI agreed to halt its transition to a for-profit model.

"Any potential reorganization of OpenAI will strengthen our nonprofit and its mission to ensure AGI benefits all of humanity," Taylor said in a statement released Friday.

Regardless of the outcome, Musk's bid is expected to complicate the company's restructuring process, coming at a time when OpenAI is in talks with SoftBank Group Corp. to raise a massive new funding round valued at up to $300 billion.

OpenAI currently has a for-profit subsidiary, which is overseen by the nonprofit and its board. As part of the planned corporate shift, the company is expected to pay a fair price for the nonprofit's assets. Previously, OpenAI stated that it would compensate the nonprofit with equity.

According to legal experts, regulators will be watching to see what stake the nonprofit receives. Musk's $97.4 billion offer may have set a new benchmark for how much OpenAI must allocate.

"OpenAI's board is on perfectly solid footing to say no to Musk's bid," Robert Bartlett, a Stanford Law School professor and co-director of the Rock Center for Corporate Governance, previously told Bloomberg News. "But that doesn't mean they can ignore the ramifications on what the bid means for valuing the assets of OpenAI's nonprofit."

If OpenAI assigns a higher value to its nonprofit, it may dilute the equity of current and prospective investors.