Elon Musk’s $97 Billion Bid Puts OpenAI’s Nonprofit Status Under Threat
What Elon Musk just did in his $97 billion bid for OpenAI is genius. The previous go-private price was $40 billion. He’s playing chess. Here’s why.
Delaware courts apply something called the “Revlon” rule to mergers and acquisitions (M&A) bidding situations. When a board decides to sell a company, their legal fiduciary duty shifts to getting the highest price for shareholders.
But OpenAI isn’t a normal company. It started as a nonprofit, then created a for-profit arm, OpenAI LP, to raise investment. That structure creates a legal gray area, making this situation far more complex than a typical corporate sale.
The Legal and Ethical Gray Zone
To understand Musk’s move, it’s important to clarify some key assumptions about OpenAI’s unique structure and governance:
- OpenAI Inc. is a nonprofit entity that governs OpenAI LP, its for-profit subsidiary. This dual structure allows OpenAI to raise capital while maintaining some level of nonprofit oversight.
- Revlon duties, which apply in Delaware corporate law, require boards to maximize shareholder value in a sale scenario. However, OpenAI’s nonprofit board is not subject to Revlon because it has no shareholders, its fiduciary duty is to the mission, not financial returns.
- Investors like Microsoft hold preferred investment interests in OpenAI LP, not equity control. This means they don’t have the typical shareholder rights seen in traditional corporations.
Musk’s bid isn’t just about buying OpenAI, it’s about forcing a decision. If OpenAI’s board even considers transitioning fully into a for-profit company, Musk’s bid puts them in a position where they might have to apply Revlon rules, maximizing value just like any other corporate sale. It’s a strategic move that could expose whether OpenAI is still mission-driven or if it has already become just another big tech company playing by Wall Street rules.
Musk’s Real Play: A Test of Mission vs. Profit
This isn’t just about money, it’s about principles and governance. Musk is challenging OpenAI’s leadership on both a legal and ethical level, testing whether their decisions align with their original vision or the financial incentives of investors like Microsoft.
If OpenAI truly operates as a mission-driven nonprofit, rejecting Musk’s $97 billion bid should be easy to justify. But if OpenAI functions more like a for-profit entity, despite its nonprofit governance, its rejection of Musk’s offer raises serious questions about governance and transparency.
And that’s the real play here. Musk has put OpenAI in an uncomfortable position where they must justify their existence, not just to him but potentially to the Delaware Chancery Court and the public at large.
The Fallout from Altman’s Rejection
Sam Altman and OpenAI’s board rejected Musk’s offer outright. But that response raises more questions than it answers:
- If OpenAI isn’t a company that can be bought, why did they take billions in investment from firms like Microsoft?
- If they are a company that can be bought, why turn down $97 billion, a valuation more than double the previous go-private price of $40 billion?
You see, they probably have a duty to create a special committee, consider all offers, and entertain an auction if they’re operating under any semblance of for-profit logic. Either way, Musk has maneuvered them into explaining their actions on both legal and ethical grounds.
A Strategic Gambit
Make no mistake, this move isn’t legal checkmate; it’s public pressure, publicity, and potentially the opening salvo in an unprecedented legal challenge to OpenAI’s governance model. While Revlon duties don’t technically apply here because of the nonprofit structure, Musk’s bid creates strategic pressure on all fronts: legally, ethically, and in terms of public perception.
Altman has characterized the bid as “intended to slow the company down,” framing it as competitive interference rather than genuine interest. But that framing doesn’t address the deeper questions Musk has raised: Is OpenAI still committed to its mission of ensuring AI benefits humanity? Or has it already become another profit-driven tech giant?
By forcing this conversation into the open, Musk may not succeed in acquiring OpenAI, but he might succeed in exposing whether its leadership is truly aligned with its founding ideals or whether financial incentives have quietly taken precedence.