Following extensive public scrutiny, OpenAI has amended its plans to transform into a traditional for-profit entity, yet its restructuring remains contentious, particularly regarding the stance of a significant stakeholder: Microsoft Corp.
Microsoft, which has invested a substantial $13.75 billion (approximately Rs. 1,15,878 crore) in OpenAI, is currently the most prominent holdout amongst investors during the organization’s restructuring discussions. Sources familiar with the situation indicate that Microsoft is keen to ensure that any changes to OpenAI’s operational structure adequately safeguard its investment. Negotiations pertaining to the details of OpenAI’s proposals are ongoing.
While Microsoft opted not to provide a comment, OpenAI released a statement affirming its commitment to collaborate with Microsoft, expressing optimism for finalizing the restructuring details shortly.
On Monday, OpenAI announced its intention to proceed with restructuring its for-profit division as a public benefit corporation; however, it revised its approach to ensure the nonprofit retains overarching control, thereby preserving its current operational framework.
OpenAI’s restructuring efforts also require the approval of state attorneys general from California and Delaware, who oversee the conversion process. The organization is tasked with conducting a fair market valuation of the nonprofit’s stake in the upcoming for-profit entity and has requested input from state AGs.
In a letter addressed to staff, OpenAI’s CEO Sam Altman highlighted that the decision to retain nonprofit control was influenced by discussions with civic leaders and state attorneys general offices. Altman expressed eagerness to collaborate further on the plan with all involved parties, including Microsoft and newly appointed nonprofit commissioners.
Although a streamlined for-profit structure may appear more appealing to investors, Altman conveyed in a media call that the revised framework would still achieve similar objectives, even under nonprofit governance. He indicated that SoftBank Group Corp. is positioned to proceed with its full $30 billion (approximately Rs. 2,52,803 crore) investment as part of the newly announced funding round.
Nonetheless, Microsoft’s approval remains crucial in this situation. Currently, only insiders from OpenAI, Microsoft, and a select group of early investors have a direct role in approving the restructuring, limiting the input to that group. Presently, OpenAI is primarily negotiating with Microsoft, according to informed sources.
Microsoft’s relationship with OpenAI is distinct from that of other investors due to licensing and revenue-sharing agreements. Ongoing negotiations also encompass these contractual elements along with equity stakes and other considerations.
In addition to securing support from Microsoft and state authorities, OpenAI faces a legal hurdle from co-founder Elon Musk concerning the restructure. Musk previously sought a court order to prevent OpenAI from transitioning into a for-profit model. Although the judge denied Musk’s request, parts of his lawsuit are still progressing. Musk had also submitted an unsolicited proposal to acquire the nonprofit’s assets, valued at $97.4 billion (around Rs. 8,20,768 crore), which was ultimately rejected.
OpenAI contends that Musk’s actions aim to obstruct its progress in favor of his competing AI venture. No immediate comment was available from Marc Toberoff, Musk’s attorney, regarding OpenAI’s updated restructuring plans.
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