OpenAI, Microsoft discuss stake in company after transition to for-profit, report says

Microsoft and OpenAI are negotiating the former’s equity stake as OpenAI nears its goal of becoming a for-profit.

As reported by the Wall Street Journal (WSJ), the companies are currently trying to decide how much to own Microsoft after their significant investments in the startup. OpenAI is transitioning from a nonprofit to a for-profit company and recently closed a funding round that valued the company at $157 billion.

The company announced its plans to transition to for-profit in September 2024

Since 2019, Microsoft has invested nearly $14 billion in OpenAI, making it the company’s largest investor. These investments were made when the company was worth much less than it is now.

Microsoft, along with other investors, is currently entitled to a portion of the future profits of OpenAI’s for-profit subsidiary controlled by the board of directors. These returns have a limit.

In addition to how much capital Microsoft will receive, the companies are also deciding what Microsoft’s governance rights might be. Both have hired investment banks to advise them throughout the process: Microsoft is working with Morgan Stanley, and OpenAI is working with Goldman Sachs. OpenAI is also being advised by Michael Klein, a former Citigroup banker. According to the WSJ, the negotiations are complicated by the fact that, if Microsoft’s involvement is significant, it could trigger an investigation by antitrust regulators.

The U.S. Federal Trade Commission (FTC) has already announced that it will conduct an antitrust investigation into Microsoft, OpenAI, and Nvidia in June 2024. However, that research focuses on the influence of companies in the artificial intelligence (AI) sector and does not analyze mergers and acquisitions.

Another FTC investigation into the AI ​​sector, including Amazon, Alphabet, Microsoft, Anthropic and OpenAI, was launched in January 2024, focusing on investments and partnerships in the making. Microsoft is currently the exclusive cloud provider for OpenAI, and the cloud giant uses OpenAI for its Copilot AI application.

OpenAI announced earlier this month that it was looking for data center providers other than Microsoft. In June, the company reportedly signed a deal to occupy the computing capacity of an Oracle data center in Abilene, Texas, that Crusoe is developing. It has since reportedly expanded to lease the entire facility, which could increase to as much as 2 GW of computing capacity. While negotiations continue, OpenAI has two years to become a for-profit company, or investors in the latest round can demand a refund.

The company says it will remain a “public benefit corporation” and work for social good, including for-profit, and in a sustainable way. CEO Sam Altman will receive shares in the company, although the amount has not yet been decided.

Post source : datacenterdynamics

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Abgineh Pardaz Shargh