Chinese company ByteDance has agreed to divest the US operations of TikTok video app completely for saving a deal with the White House, after President Donald Trump on Friday threatened to ban the short-video app, inside sources said on Saturday.
TikTok has up to 80 million daily active users in the United States and Trump administration has said the social media app under its Chinese parent poses a national risk because of the personal data it handles.
ByteDance’s big concession will test whether Trump’s threat to ban TikTok is a negotiating tactic, or he is intent on cracking down on it.
Pressure on TikTok Video App
Trump told reporters onboard Air Force One late Friday he would issue an order for TikTok to be banned in the US as early as Saturday.
“Not the deal that you have been hearing about, that they are going to buy and sell… We are not an M&A (mergers and acquisitions) country,” Trump said.
ByteDance was previously seeking to keep a minority stake in the US business of TikTok, which the White House had rejected.
Fox Business and The New York Times reported on Friday, software giant Microsoft was in negotiations to buy TikTok’s US operations from its Chinese developer ByteDance, which was also considering non-Chinese investors like Sequoia Capital, SoftBank and General Atlantic.
According to Bloomberg’s sources, US government officials have had talks with “at least one other large company” other than Microsoft which hasn’t been identified.
New Deal – Takeover by Microsoft
Under the new proposed deal, the company would exit completely and Microsoft Corp would take over TikTok video app in the United States, the sources said.
Some ByteDance investors that are based in the US may be given the opportunity to take minority stakes in the business, the sources added. About 70% of ByteDance’s outside investors come from the United States.
The White House declined to comment on whether President Trump would accept ByteDance’s concession. The Beijing based company also did not respond to a request for comment.
There was also no official confirmation of the imminent takeover by Microsoft.
“We are here for the long run. Continue to share your voice here and let’s stand for TikTok,” TikTok US general manager Vanessa Pappas said in a video published on the app on Saturday.
Under ByteDance’s new proposal, Microsoft, which also owns the professional social media network LinkedIn, will be in charge of protecting all of TikTok’s US user data, the sources said.
The plan allows for a US company other than Microsoft to take over TikTok video app in the United States, the sources added.
Microsoft also did not respond to a request for comment.
Flashpoint of Wider US-China Trade Conflict
As relations between the United States and China deteriorate over trade, Hong Kong’s autonomy, cybersecurity, and the spread of the novel coronavirus, TikTok video app has emerged as a flashpoint in the dispute between the world’s two largest economies.
ByteDance has been considering a range of options for TikTok amid US pressure to relinquish control of the app, which allows users to create short videos with special effects and has become wildly popular with US teenagers.
ByteDance had received a proposal from some of its investors, including Sequoia and General Atlantic, to transfer majority ownership of TikTok to them.
The proposal valued TikTok video app at about $50 billion, but some ByteDance executives believe the app is worth more than that.
ByteDance acquired Shanghai-based video app Musical.ly in a $1 billion (764.5 million pounds) deal in 2017 and relaunched it as TikTok the following year.
ByteDance was valued at as much as $140 billion earlier this year when one of its shareholders, Cheetah Mobile, sold a small stake in a private deal. The startup’s investors include Japan’s SoftBank Group Corp.
The bulk of ByteDance’s revenue comes from advertising on apps under its Chinese operations including Douyin – a Chinese version of TikTok – and news aggregator app Jinri Toutiao, as well as video-streaming app Xigua and Pipixia, an app for jokes and humorous videos.
ByteDance did not seek approval for the acquisition from the Committee on Foreign Investment in the United States (CFIUS), which reviews deals for potential national security risks.
CFIUS had opened an investigation into TikTok video app last year.
The United States has been increasingly scrutinizing app developers over the personal data they handle, especially if some of it involves US military or intelligence personnel.
Ordering the divestment of TikTok would not be the first time the White House has taken action over such concerns.
Earlier this year, Chinese gaming company Beijing Kunlun Tech Co Ltd sold Grindr LLC, a popular gay dating app it bought in 2016, for $620 million after being ordered by CFIUS to divest.
In 2018, CFIUS forced China’s Ant Financial to scrap plans to buy MoneyGram International Inc. over concerns about the safety of data that could identify US citizens.