Aspiring TikTok buyers pursue four options in effort to progress talks

Platform news: TikTok app based in China, US politics

TikTok’s prospective buyers are discussing four strategies to structure an acquisition from its Chinese proprietor ByteDance, including purchasing the program’s US operations without crucial software assets, after Beijing stalled a deal that could be worth $30 billion, sources said.

Other alternatives being considered include requesting Chinese approval to pass TikTok’s algorithm on to the acquirer of this short movie apps US assets, licensing the algorithm from ByteDance, or searching for a transition period by a US federal security panel overseeing the deal, three sources said.

ByteDance had been trying to select a purchaser for TikTok assets through this week so it can finalise a deal by mid-September and comply with President Donald Trump’s order to divest those assets, after US officials raised concerns over the safety of their personal information of US taxpayers managed by TikTok.

“TikTok is loved by 100 million Americans because it’s a home for entertainment, self-expression, and connection. We’re committed to continuing to bring joy to families and meaningful careers to those who create on our platform for many years to come,” that a TikTok spokeswoman said in an announcement.

Beijing last week updated its export control rules to limit the sale of technology such as the one used by TikTok to advocate videos to users, raising questions over whether it would veto a deal and giving potential buyers Microsoft and Oracle pause for thought.

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FOUR STRATEGIES

ByteDance and the bidders for the TikTok assets are currently discussing four strategies to structure the deal, the sources, who requested anonymity, told Reuters.

It’s not clear that, if any, of the choices will be pursued. As days pass, the odds of a deal lengthen as TikTok faces a US ban on September the 20th if no purchase agreement was reached. It’s challenged the ban in court.

1 possibility being discussed is to sell TikTok with no algorithm that it uses to create recommendations to customers. While that could bypass China’s export control rules, it might present a significant gamble for Microsoft and Oracle, which would need to quickly produce a substitute.

Another choice is to negotiate a transition period of up to a year with the Committee on Foreign Investment in the United States (CFIUS), which is overseeing the bargain discussions, the sources said. It isn’t clear whether China’s new rules would enable this in the time frame required.

A third option is seeking approval from China to pass on TikTok’s algorithm to the purchaser of its US assets, the sources stated. This could amplify the economic danger, given worsening relations between the world’s two biggest economies over trade, cyber security and the spread of this coronavirus.

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The fourth scenario involves ByteDance’s licensing the algorithm into the buyer of their TikTok assets, the sources stated. However, this could worry CFIUS, which needs ByteDance to forego some connection it has with TikTok from the US.

TikTok is functionally and technically similar to ByteDance-owned Douyin, that is available only in China, also stocks technical resources with it along with other ByteDance-owned properties, sources have previously said.

While the code to the program, which determines the appearance and texture of TikTok, has been split from Douyin, the host code powering the algorithms for moderating and advocating articles and the management of user profiles is partially shared.

DANCE TRACKED?

Even though TikTok is famous for videos of people dancing which go viral amongst teenagers, US officials also have expressed concern that user info could be passed to Beijing.

TikTok has stated it wouldn’t comply with any request to share user data with the Chinese authorities.

ByteDance was in talks to sell TikTok’s North American, Australian and New Zealand operations because last month. And in a indication of creator and Chief Executive Zhang Yiming’s concern, TikTok engineers have been told last week to make contingencies if TikTok should shut down its US operations.

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Walmart said last week it was joining Microsoft in its bid for TikTok’s US assets, hours following the app’s newly named chief executive, Kevin Mayer, said he’d step down.

Oracle, whose Chairman Larry Ellison is among the tech world’s limited number of Trump supporters, has partnered with a number of ByteDance’s investors, such as General Atlantic and Sequoia, on its bid for the TikTok assets.

The team at Platform Executive hope you have enjoyed this news article. Initial reporting via our official content partners at Thomson Reuters. Reporting by Echo Wang, Greg Roumeliotis amd Krystal Hu in New York. Additional reporting by Yingzhi Yang in Beijing and Kane Wu in Hong Kong. Editing by Alexander Smith and Leslie Adler.

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