Musk blocks spin-off of for-profit company OpenAI with $100 billion offer

With a bid of $97.4 billion on OpenAI's non-profit parent entity, a consortium around Elon Musk is trying to make it more difficult for the OpenAI company to split off from this parent entity. It is not for nothing that Musk is the richest man in the world, and this move could well prove successful.

How did it go again?

Musk was the co-founder of OpenAI, together with Sam Altman. After a power struggle in 2018, Musk left, taking the funding of the non-profit entity that was OpenAI with him. The non-profit entity then decided to start a (for-profit) subsidiary, where investors could participate. This latter company has raised many billions in funding in recent years. Investors in the company receive a capped profit of up to 100 times their investment.

If the price is right

In order to attract more money from investors, the subsidiary now wants to get rid of this capped profit and in doing so must divest itself of its non-profit parent entity. However, the current structure of OpenAI and the rapid development of AI make it very difficult to determine how much the interest of the parent company is actually worth. Then there are also all kinds of IP issues; some of this may still lie with the parent entity. In addition, investor Microsoft has an exclusive licence to use the IP for its own products.

Whatever the fool wants to give for it

The board of the parent entity must at the same time ensure that it receives a fair price (the market value) for its stake in OpenAI. And now there is also Musk, who reportedly wants to give almost $100 billion for it (and would be willing to ‘match’ higher bids, although according to OpenAI no formal bid has been made). If the stake is sold, it will now be difficult for the board of the parent company to claim that the value is below $100 billion. If the board sells for too little, director's liability could be a threat. With this, Musk is putting the directors in a corner from a corporate law perspective.

And that, again, is very good for Musk

What he also knows is that recent investors in the for-profit subsidiary have been promised that it will be split off from the parent entity in October 2026. And that if that does not happen, the subsidiary will have to repay the $6.6 billion it has raised to investors. In this way, he creates time pressure and uncertainty among new investors about the future of the for-profit organisation.

Why?

Only Musk knows. Perhaps because he sincerely believes that AI is too important for a commercial company, perhaps because he wants to show Microsoft or Altman up. Or maybe because he just wants to be his own boss. In any case, this is a boss move in terms of corporate law.