A group of US tech investors has launched an ambitious plan to buy TikTok from its Chinese owner, as the popular short-video app tries to escape being banned by the White House.
The investors, led by the venture capital firms General Atlantic and Sequoia Capital, are in discussions with the US Treasury and other regulators to see if spinning out TikTok and firewalling it from its Chinese parent would satisfy US concerns about the app, according to two people involved in the process.
Last weekend, President Donald Trump’s election campaign placed ads on Facebook suggesting that TikTok was “spying” on US users, a claim the company has denied. Other critics have noted the app’s huge influence as it sits on the mobile phones of tens of millions of Americans.
After the buyout, ByteDance, the Beijing-headquartered company that currently owns TikTok as well as its mainland Chinese sister app, Douyin, would retain a minority stake in the international business, with nonvoting shares, according to one of the people involved.
“This is the only viable plan,” the person said. The Information first reported some of the details of the buyout talks.
Other investors, including New York-based private equity firms and Silicon Valley tech firms, have also made approaches to ByteDance and its founder, Zhang Yiming, about a potential deal for TikTok.
But none is as far advanced as the General Atlantic and Sequoia group, according to the people involved. ByteDance was reluctant to share its technology with a rival company, added one of the investors.
There were several hurdles before a carve-out could take place, noted one adviser familiar with TikTok’s situation. The White House is currently reviewing whether to take action against TikTok, including whether to put it on a banned entity list that would cripple its business. There were hardcore factions in the state department and the justice department that want it banned, the adviser said.
Warning shots
Larry Kudlow, Donald Trump’s top economic adviser, said last week that no “decisions” had been made but suggested that TikTok could “pull out” of the Chinese holding company and “operate as an independent American company.”
In addition, ByteDance’s 2017 acquisition of Musical.ly, which had an office in California and was arguably the catalyst for TikTok’s success, is being reviewed by the Committee on Foreign Investment in the US (Cfius).
One of the people involved in the potential bid acknowledged that Cfius was a growing risk for the company. “Originally when we sat down with them, there was talk of just a lot of restrictions,” said the investor. “But after India shut down TikTok, the discussion completely metastasized.” Discussions with Cfius started a few weeks ago in what is expected to be a 90-day process.
The US Treasury, which chairs Cfius, declined to comment on the potential deal and on the Cfius investigation, noting that “by law, information filed with Cfius may not be disclosed by Cfius to the public.”
It was unclear what price the investors would bid for TikTok. ByteDance was valued at $75 billion in its last fundraise in 2018, but while TikTok has quickly accrued hundreds of millions of users in India and the West, it is not thought to be profitable. The majority of ByteDance’s profits stem from Douyin. “It is young and it is early on in the monetisation process,” said one of the investors. “But it is a unique asset.”
TikTok said: “Since publicly announcing two weeks ago that we are evaluating changes to the corporate structure of the TikTok business, there have been numerous suggestions made by external people not involved in the company’s internal discussions. We do not comment on rumours or speculation. We are very confident in the long-term success of TikTok and will make our plans public when we have something to announce.”
General Atlantic and Sequoia declined to comment.
Additional reporting by James Politi in Washington
© 2020 The Financial Times Ltd. All rights reserved. Not to be redistributed, copied, or modified in any way.
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