Caixin
Aug 03, 2020 08:42 PM
BUSINESS & TECH

Microsoft, Bytedance Founder Confirm TikTok Sales Talks Underway

Microsoft’s announcement was the first public confirmation that it is seeking to acquire TikTok’s U.S. operations.
Microsoft’s announcement was the first public confirmation that it is seeking to acquire TikTok’s U.S. operations.

Beleaguered ByteDance Ltd. got a bit of relief Sunday when Microsoft Corp. confirmed it is still looking to acquire the U.S. operations of TikTok, even after U.S. President Donald Trump said Friday he would “immediately” ban the short-video app.

In a Sunday statement, the American tech giant said it had decided to continue discussing the plan after Microsoft CEO Satya Nadella had a discussion with Trump, and that the company is aiming to reach a deal with ByteDance by Sept. 15.

However, the fate of the Chinese internet company’s globally popular app remains far from clear.

On Monday, ByteDance founder and CEO Zhang Yiming sent out an internal letter (link in Chinese) that acknowledged for the first time the “real possibility of a forced sale of TikTok’s U.S. business … or an executive order banning the TikTok app in the U.S.”

In the letter, Zhang said the company is still looking at other possibilities besides a sale, and that it will “initiate preliminary discussions with a tech company” to ensure American users can still use the app.

Some ByteDance investors had proposed Zhang retain a minority stake in TikTok’s U.S. operations, Caixin had learned. However, the company has decided to discuss a 100% stake sale in the app’s U.S. operations amid White House pressure, multiple media outlets reported.

ByteDance under fire

ByteDance has been one of the most prominent companies caught in the crossfire of worsening China-U.S. relations, with TikTok in recent months facing accusations from U.S. officials and lawmakers that it may be feeding users’ data to the Chinese authorities and undermining U.S. national security. ByteDance has repeatedly denied such allegations.

To assuage these data security concerns, Microsoft said in its statement that, if the acquisition goes ahead, it would ensure that all the private data of TikTok’s American users is “transferred to and remains in the United States.” Also, Microsoft said it would delete any U.S. users’ data that is currently stored outside the U.S. after it was transferred.

The North American nation has been TikTok’s second-largest market, where it had been downloaded a total of 165 million times as of the end of March, accounting for 8.2% of the app’s global downloads, according to Sensor Tower. TikTok’s largest market was India, but it has been banned there since June.

ByteDance’s U.S. expansion made a significant step forward when it bought another app, Musical.ly, in late 2017 and folded the latter’s services into TikTok. However, this deal drew regulatory scrutiny, with the Committee on Foreign Investment in the United States (CFIUS) launching an investigation in November.

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The CFIUS investigation concluded that no action from TikTok would be able to address the national security concerns, a source familiar with the situation told Caixin. The source added that the results of the probe had been presented to Trump and suggested TikTok should be controlled by an American company.

Global ambitions remain

Microsoft’s announcement was the first public confirmation that it is seeking to acquire TikTok’s U.S. operations. Earlier, two sources familiar with the matter told Caixin that Microsoft had signed a letter of intent with ByteDance to pave the way for the U.S. software giant to acquire part of the latter’s business. The deal was brokered by Nadella and potentially also involves the sale of TikTok’s operations in Canada and Australia, markets that are operated by U.S.-based teams, one of the sources said at the time. Additionally, rather than an outright ban, Trump had originally favored a sale to social media giant Facebook, the source added.

However, Zhang didn’t want to sell part of his company to Facebook, which is seen as a rival, the other source said that. Meanwhile, a sale to Microsoft is seen more as an alliance, the source said.

Despite pressure to sell operations in some part of the world, the source said ByteDance will still continue its global expansion strategy, and continue its operations in the important European markets.

Contact reporter Mo Yelin (yelinmo@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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