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Musk's bid intensifies tensions with OpenAI CEO Altman

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Consortium includes xAI, Baron Capital and others

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Offer complicates OpenAI's transition to for-profit

organization, analysts say

By Arsheeya Bajwa, Anna Tong, Krystal Hu

Feb 10 (Reuters) - A consortium led by Elon Musk said on

Monday it has offered $97.4 billion to buy the nonprofit that

controls OpenAI, another salvo in the billionaire's fight to

block the artificial intelligence startup from transitioning to

a for-profit firm.

Musk's bid is likely to ratchet up longstanding tensions

with OpenAI CEO Sam Altman over the future of the ChatGPT maker

at the heart of a boom in generative AI technology. Altman on

Monday promptly posted on X: "no thank you but we will buy

twitter for $9.74 billion if you want."

Musk cofounded OpenAI with Altman in 2015 as a nonprofit,

but left before the company took off. He founded the competing

AI startup xAI in 2023.

Musk, the CEO of Tesla and owner of tech and social

media company X, is a close ally of President Donald Trump. He

spent more than a quarter of a billion dollars to help elect

Trump, and leads the Department of Government Efficiency, a new

arm of the White House tasked with radically shrinking the

federal bureaucracy. Musk recently criticized a $500 billion

OpenAI-led project announced by Trump at the White House.

OpenAI is now trying to transition into a for-profit from a

nonprofit entity, which it says is required to secure the

capital needed for developing the best AI models.

Musk sued Altman and others in August last year, claiming

they violated contract provisions by putting profit ahead of the

public good in the push to advance AI. In November, he asked a

U.S. district judge for a preliminary injunction blocking OpenAI

from converting to a for-profit structure.

Musk's lawsuit against OpenAI and Altman says the founders

originally approached him to fund a nonprofit focused on

developing AI to benefit humanity, but that it was now focused

on making money.

"It's time for OpenAI to return to the open-source,

safety-focused force for good it once was," Musk said in a

statement on Monday. "We will make sure that happens."

Musk and OpenAI backer Microsoft ( MSFT ) did not

immediately respond to requests for comment.

"Musk's bid puts another wrinkle into OpenAI's quest to

remove the nonprofit's control over its for-profit entity," said

Rose Chan Loui, executive director of the UCLA Law Center for

Philanthropy and Nonprofits.

"This bid sets a marker for the valuation of the

nonprofit's economic interests," she said. "If OpenAI values the

nonprofit's interests at less than what Musk is offering, then

they would have to show why."

The consortium led by Musk includes his AI startup xAI,

Baron Capital Group, Emanuel Capital and others.

XAI could merge with OpenAI following a deal, according to

the Wall Street Journal which first reported Musk's offer

earlier on Monday. XAI recently raised $6 billion from investors

at a valuation of $40 billion, sources have told Reuters.

'THROWING A WRENCH'

"This (bid) is definitely throwing a wrench in things,"

said Jonathan Macey, a Yale Law School professor specializing in

corporate governance.

"The nonprofit is supposed to take money to do whatever

good deeds, and if OpenAI prefers to sell it to somebody else

for less money, it's a concern for protecting the interests of

the beneficiaries of the not-for-profit."

OpenAI was valued at $157 billion in its last funding round,

cementing its status as one of the most valuable private

companies in the world. SoftBank Group is in talks to

lead a funding round of up to $40 billion in OpenAI at a

valuation of $300 billion, including the new funds, Reuters

reported in January.

Aside from any antitrust implications, a deal this size

would need Musk and his consortium to raise enormous funds.

Musk's stock in Tesla is valued at roughly $165 billion,

according to LSEG data, but his leverage with banks is likely to

be thin after his $44 billion buyout of what was then called

Twitter in 2022.

To finance such a bid, Musk could sell part of his stake in

Tesla or take a loan against his stake, or use his stake in

rocket company SpaceX that is worth tens of billions of dollars

as collateral, according to an uninvolved investment banker, who

requested anonymity.

"Musk's offer to buy OpenAI's nonprofit should significantly

complicate OpenAI's current fundraising and the process of

converting into a for-profit corporation," said Gil Luria,

analyst at D.A. Davidson.

"The offer seems to be backed by more credible investors

... OpenAI may not be able to ignore it. It will be the

fiduciary responsibility of OpenAI's board to decide whether

this is a better offer, which could call into question the offer

from SoftBank."