xAI advises staff to limit contact with Cursor workers
▼ Summary
– xAI’s general counsel instructed employees to limit contact with Cursor staff, citing antitrust gun-jumping concerns, after collaboration was already underway.
– US law prohibits merging companies from intermingling operations before regulatory approval, with violations risking penalties or deal derailment.
– SpaceX has an option to acquire Cursor for $60 billion during a 30-day window after its expected IPO, or pay a $10 billion breakup fee by 2026.
– xAI faces internal dysfunction, including layoffs, the departure of all 11 co-founders, and unpaid employee incentives like a $420 tax data program.
– Cursor, with $2 billion in annualized revenue and 67% Fortune 500 adoption, must stay operationally separate from xAI’s chaos while the acquisition option is pending.
Shortly after xAI and Cursor began a technical partnership in April, xAI’s general counsel issued a warning to staff: keep interactions with Cursor employees to a minimum. The directive from James Burnham, who previously served as chief lawyer at the Department of Government Efficiency, came weeks after the two teams had already started working together inside xAI’s offices. This timing raises serious gun-jumping antitrust concerns ahead of a potential $60 billion acquisition linked to SpaceX’s record-breaking IPO.
Burnham’s email, reported by Bloomberg, instructed xAI personnel that conversations with Cursor staff should be strictly limited to what is necessary for the technical partnership announced in April. That partnership, which allows both companies to share computing resources and collaborate on coding, is legally distinct from the potential acquisition. However, the legal guidance that should have preceded the collaboration arrived after it was well underway. US antitrust law prohibits gun-jumping, which involves merging companies improperly intermingling assets or making joint business decisions before regulatory approval. Violations can result in steep penalties and even derail a transaction entirely. Burnham’s message reminded employees that xAI and Cursor remain separate legal entities and must operate independently until the deal receives clearance from the Justice Department or Federal Trade Commission.
The stakes are high. Employees were warned that their conversations could be subpoenaed during the regulatory review, and any evidence of improper coordination could put the entire deal at risk. Under the guidelines, xAI engineers can share data and code with Cursor for joint model training but cannot use Cursor resources for unrelated tasks. Both sides can use intellectual property from either company, including the Grok chatbot, but only in developing the joint model. Everything else is off limits.
The warning arrived on the same day SpaceX filed paperwork for what is expected to be the largest IPO in history. SpaceX, which absorbed xAI in a $1.25 trillion all-stock merger in February, plans to list on the Nasdaq under the ticker SPCX at a valuation of roughly $1.75 trillion. A securities filing confirmed that SpaceX has the right to acquire Cursor during a 30-day window that opens shortly after the company goes public. If SpaceX does not exercise the option by the end of 2026, it owes Cursor a $10 billion breakup fee.
Inside xAI, the antitrust guidance is just one layer of a broader operational mess. Michael Nicolls, a SpaceX vice president who previously led Starlink engineering, has taken over the bulk of engineering at what Musk now calls SpaceXAI. The division covers infrastructure and Grok development. Nicolls acknowledged publicly that the company is “clearly behind” competitors.
The personnel situation reinforces the point. Musk ordered layoffs in March after growing frustrated with xAI’s performance on coding tasks compared to Anthropic’s Claude Code and OpenAI’s Codex. All 11 of xAI’s co-founders have now left the company. Job cuts have continued in recent weeks even as dozens of new hires are brought on simultaneously. The operations team is overwhelmed, and basic internal requests are not being processed on time.
One example captures the dysfunction. xAI offered employees $420 each to hand over their personal tax returns as training data for Grok ahead of the April tax deadline. Two months later, nobody has been paid. The manager who ran the programme no longer works at the company.
For Cursor, the situation is equally delicate. The startup hit $2 billion in annualised recurring revenue by February 2026, making it the fastest-scaling B2B software company on record. Its AI code editor counts 67 per cent of the Fortune 500 among its users. Cursor has every reason to keep its distance from xAI’s internal chaos while the acquisition clock ticks.
The antitrust risk is real but manageable if both sides follow the rules from this point forward. The harder question is whether a company that cannot pay employees $420 on time, that has lost every co-founder, and that is simultaneously laying off staff and hiring replacements is in a position to absorb a $60 billion acquisition 30 days after going public. SpaceX’s post-IPO Cursor deal depends on execution, and execution is exactly what xAI has struggled with most.
(Source: The Next Web)
