xAI told staff to stop mingling with Cursor employees, weeks after they started working together

Elon Musk’s xAI has told employees to limit their contact with staff from Cursor , the AI coding startup that SpaceX has an option to acquire for $60 billion. The directive came from James Burnham, xAI’s general counsel and former chief lawyer at the Department of Government Efficiency, according to Bloomberg.

Burnham sent guidelines to xAI personnel last week instructing them that interactions with Cursor staff should not go beyond what is needed to carry out a technical partnership announced in April. That partnership allows the two companies to collaborate on computing resources and coding. It is legally separate from the potential acquisition.

The problem is timing. Cursor employees are already working inside xAI’s offices. The two teams have been collaborating on projects for weeks. The legal guidance that should have preceded that collaboration arrived after it was well under way.

US antitrust law prohibits what regulators call gun-jumping, the intermingling of assets or joint business decisions between merging companies before the deal receives approval from the Justice Department or Federal Trade Commission. Violations carry steep financial penalties and can delay or derail a transaction. Burnham’s email reminded staff that xAI and Cursor remain legally separate entities and must operate independently until the deal, if it proceeds, receives regulatory clearance.

The stakes are not abstract. Employees were told their conversations could be subpoenaed during the regulatory review. Any evidence that the two sides improperly combined operations 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 anything unrelated. 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 landed on the same day that 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 submitted last week 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.