Microsoft seeks to acquire TikTok assets from China's ByteDance

Advance notice has already been provided to the Committee on Foreign Investment in the US (CFIUS) over a preliminary proposal that would see Microsoft take ownership of TikTok in the US, Canada, Australia, and New Zealand. The US software player said in a statement that it remains committed to a potential deal following a conversation between CEO Satya Nadella and Trump. Negotiations must conclude no later than September 15.

Last week, Trump vowed to ban TikTok and talked down the possibility of a sale to Microsoft. TikTok responded by stressing its commitment to the US, announcing plans for a tenfold increase in its local headcount as well as a fund to support US-based content creators. The company added that all its US user data is stored locally and there are strict controls on employee access.

TikTok’s status in the US was already under review by CFIUS on national security grounds, specifically concerns that China could use the app to access sensitive data. US Treasury Secretary Steve Mnuchin told ABC last week that CFIUS agrees “TikTok cannot stay in the current format because it risks sending back information on 100 million Americans.”

Secretary of State Mike Pompeo subsequently told Fox News that other Chinese technology companies could face similar action for “feeding data directly to the Chinese Communist Party, their national security apparatus.” He mentioned Tencent Holdings’ WeChat platform as well as TikTok.

Microsoft stressed that its operating model would ensure transparency to users as well as security oversight by the governments in which the service is offered. Any user data currently stored or backed-up outside the US would be deleted from those servers once transferred.

While ByteDance would retain no interest in the business sold to Microsoft, the US software company did say it may “invite other American investors to participate on a minority basis in this purchase.” It has been reported that several investors in ByteDance, including Sequoia Capital and General Atlantic, have proposed to acquire a majority stake in TikTok at a valuation of $50 billion.

ByteDance, which offers a range of products in addition to TikTok such as China-based equivalent Douyin, news aggregation platform Toutiao, and enterprise software offering Lark, achieved a post-deal valuation of nearly $80 billion on completion of a funding round in 2018. This rose to $140 billion earlier this year when Cheetah Mobile sold a stake in the business, Reuters reported, adding that ByteDance was targeting RMB200 billion ($28 billion) in revenue for 2020.

ByteDance has raised more than $6 billion in private funding, AVCJ Research’s records show. Other investors include Coatue Management, Hillhouse Capital, KKR, Primavera Capital Group, SIG China, SoftBank Group, Source Code Capital, and Tiger Global Management.

Douyin and TikTok emerged following the acquisition of short video social networking platform Musical.ly in 2017, which gave the likes of GGV Capital, Qiming Venture Partners, and DCM Ventures equity interests in ByteDance. TikTok is available in 150 countries and is said to have around 800 million monthly active users (MAUs), of which half are Douyin users in mainland China. There are 30 million MAUs in the US.

While the TikTok situation reflects the poor state of relations between China and the US, other countries are also taking action. India – the largest userbase outside of China – has already blocked the app and Japanese lawmakers have announced plans to do the same.

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• Topics
• Greater China
• North America
• Trade sale
• Regulation
• Technology
• China
• USA
• TMT
• ByteDance
• Sequoia Capital
• General Atlantic
• KKR
• Softbank
• Hillhouse Capital Management