In my previous post I asked: Why Would Musk Offer $97.4 Billion for OpenAI, Just to Make it Free?

Let's review Musk's nearly $100 billion offer. Does it make any sense?

Garrison Lovely Chimes In

OpenAI is attempting to transition to a for profit public benefit corporation. To do so, it needs to take control from the nonprofit board, which needs to be compensated at fair market value. OAI was maybe going to pay <$40B. Musk just made that a lot more complicated!

If OAI doesn't complete its for profit transition in <2 years, investors in the October round can ask for their money back. It's really hard to price the control the nonprofit board (ostensibly) has over OpenAI. The "control premium" is typically 20-30% of the company's value.

But it can be as high as 70%. If OAI gets valued at $300B because of the SoftBank investment, that would come out to $60-210B. Some argued that you should think of what a rival like Google would be willing to pay for control of OpenAI.

Well Elon just put an actual price on that. A number of different govt parties can block the OpenAI transition (e.g. CA and Delaware Attorneys General). Probably the biggest factor in that would be how much OpenAI pays the nonprofit to give up control.

Some legal experts I've spoken with even argue that it may be impossible to fairly price this level of control, since if AGI is developed, it could be worth almost infinite amounts of money — or cause human extinction.

The $97.4B bid from Musk's group has another interesting wrinkle: they're promising to match or exceed any higher bids. This suggests Musk thinks OpenAI's nonprofit board might try to entertain other offers.

This is particularly thorny because OpenAI's nonprofit board has a fiduciary duty to "humanity" rather than to investors or employees. Some argue this means they legally can't give up control at any price.

Whatever happens next, this massively complicates OpenAI's attempt to shed its nonprofit structure. The nonprofit board now has to explain why they'd accept less than $97.4B — especially with a promise to match higher bids.

I almost forgot something else the nonprofit has: all profits above the various profit caps. In the case that OpenAI actually does what it says it wants to do, this could be worth A LOT. Part of the restructuring is reported to include removal of these caps.