How Musk’s $97.4B Bid Could Disrupt OpenAI’s Shift to a For-Profit Model

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On Monday, Elon Musk, the world’s wealthiest individual, made an unsolicited $97.4 billion offer to acquire the nonprofit entity that effectively governs OpenAI. The bid, backed by Musk’s AI company xAI and a group of external investors, was detailed in a letter sent to the attorneys general of California and Delaware.

OpenAI CEO Sam Altman swiftly dismissed the offer, using the opportunity to take a public jab at Musk.

“No thanks, but we’ll buy Twitter for $9.74 billion if you’re interested,” Altman posted on X, just hours after reports surfaced about Musk’s bid. Musk, who owns X (formerly Twitter), had acquired it for approximately $44 billion in October 2022.

The two have a contentious history. Musk co-founded OpenAI but later parted ways, and both he and xAI are currently engaged in a legal dispute against OpenAI, alleging anticompetitive practices.

Yet, according to corporate governance experts, Altman’s rejection of Musk’s offer isn’t as simple as just saying “no.”

A Roadblock to OpenAI’s Nonprofit Transition

OpenAI initially launched as a nonprofit before shifting to a “capped-profit” model in 2019. In this structure, the nonprofit retained control over OpenAI’s for-profit subsidiary, ensuring it adhered to its original mission.

Currently, OpenAI is undergoing another transformation—this time into a public benefit corporation—to raise more capital. However, Musk, known for leveraging legal tactics to challenge rivals, may have thrown a wrench into these plans. His bid could delay the restructuring and potentially increase the valuation of OpenAI’s nonprofit entity.

Regulators in Delaware and California have requested further details on OpenAI’s plans to transition into a for-profit corporation. Additionally, the bid compels OpenAI to consider outside offers more seriously.

While OpenAI’s board is expected to reject Musk’s bid, he appears to be laying the groundwork for future legal and regulatory challenges. He has already sought an injunction to block OpenAI’s conversion, and his takeover attempt might be a strategic alternative.

The board must now demonstrate that it isn’t undervaluing OpenAI’s nonprofit assets—particularly its intellectual property—by transferring them to insiders like Altman at a steep discount.

“Elon is throwing a wrench in the process,” said Stephen Diamond, a corporate governance attorney who has previously represented Musk’s opponents at Tesla. “He’s leveraging the board’s fiduciary duty to ensure the nonprofit isn’t selling itself short. OpenAI has no choice but to take his bid seriously.”

OpenAI is reportedly preparing for a funding round that would value its for-profit arm at $260 billion. According to The Information, the nonprofit entity is expected to retain a 25% stake in the for-profit company.

By making a formal offer, Musk signals that there are investors willing to pay a premium for OpenAI’s nonprofit wing—putting additional pressure on the board.

Why OpenAI Can Reject Musk’s Offer

Despite the high bid, OpenAI’s board isn’t obligated to accept Musk’s offer.

Corporate law grants incumbent boards significant power to resist hostile takeover attempts, according to David Yosifon, a corporate governance professor at Santa Clara University.

OpenAI can argue that Musk’s offer is a strategic maneuver rather than a genuine acquisition attempt, given his ongoing disputes with Altman. Additionally, since OpenAI is already restructuring, the board could claim the bid isn’t credible.

Another angle OpenAI could take is questioning Musk’s ability to finance the deal. The New York Times reports that most of Musk’s wealth is tied to Tesla stock, meaning he would need his investment partners to supply a significant portion of the $97.4 billion bid.

OpenAI’s board is also responsible for ensuring that any decision aligns with the nonprofit’s mission: to develop artificial general intelligence (AGI) that benefits all of humanity. Scott Curran, former general counsel to the Clinton Foundation, emphasized that the board must evaluate Musk’s offer not just financially, but in terms of its alignment with OpenAI’s purpose.

“When Altman fired off that tweet, it was likely without legal consultation,” Yosifon noted. “Regulators don’t look kindly on dismissive, off-the-cuff remarks like that.”

Impact on OpenAI’s Valuation and Investors

Given the board’s strong ties to Altman, they are likely to side with him. Most of its members joined after OpenAI’s leadership turmoil in late 2023, when Altman was briefly ousted and then reinstated. Altman himself also serves on the board.

Still, Musk’s bid could ultimately push up OpenAI’s valuation. If investors perceive OpenAI’s nonprofit assets as more valuable, the company may need to raise additional funds—potentially complicating negotiations with existing backers. A higher valuation could also dilute the stakes of current investors in the for-profit entity, including key partners like Microsoft.

This development is bound to frustrate Altman, who has been working to fairly allocate value between OpenAI’s nonprofit and for-profit wings.