ByteDance is poised to miss US deadline for TikTok sale

TikTok owner ByteDance has been told by Beijing that any deal must be submitted for approval with detailed information about technical and financial issues, and the review will be substantial and take time
Microsoft and Oracle remain interested in buying TikTok’s US business, despite Beijing’s involvement

TikTok ban

Bloomberg

Published: 7:30pm, 10 Sep, 2020

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ByteDance is increasingly likely to miss a Trump administration deadline for the sale of its TikTok US operations after new Chinese regulations complicated negotiations with bidders Microsoft Corp and Oracle Corp, according to people familiar with the matter.

ByteDance probably needs beyond the US executive order ban on September 20 to nail down an agreement with either party because of the regulatory review, said the people, asking not to be identified because the matter is private.

In preliminary talks with Chinese government officials, ByteDance has been told any proposal must be submitted for approval with detailed information about technical and financial issues, and the review will be substantial and take time, one of the people said. The officials have not been willing to give specific guidance on what kind of deal would work, the person said.

Microsoft and Oracle, which had submitted proposals before the Chinese regulations hit, both continue to be interested in buying the US arm of the hit short video-sharing app and have not been dissuaded by Beijing’s involvement, the people said. The bidders have asked ByteDance to get as much clarity as possible from Beijing on the new regulations, which prohibit the export of certain artificial intelligence technologies that TikTok uses, they said.

TikTok in talks with Donald Trump administration to avoid full sale of US assets

The parties are still racing to present a preliminary deal to the White House before this month’s deadline, though no agreement could be finalised before Beijing’s sign-off. It is also possible that ByteDance pulls out of a sale altogether if it determines it cannot satisfy both governments, the bidders and its own shareholders.

A representative of the Beijing-based company offered no immediate comment.

ByteDance founder Zhang Yiming has been caught in a clash between the world’s two pre-eminent powers. The serial entrepreneur has been reluctant to give up TikTok’s US operations from the start because he sees the business as a viable long-term competitor to Facebook and Google. He came under pressure to cede control when the Trump administration said it would ban the app and his own venture investors pressed for a sale to salvage some value from the operation.

The Trump administration is divided over whether to give ByteDance more time or simply proceed with the ban. US President Donald Trump himself has called the app a national security risk, passing an executive order to ban the service this month and approving a separate decision by the Committee on Foreign Investment in the United States to force a sale by mid-November.

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Donald Trump insists deadline for TikTok sale due on September 15

ByteDance has sued in the US to block the executive order ban, arguing that putting it out of business without adequate notice and a fair chance to respond deprives it of its due-process rights in violation of the US Constitution. The Beijing-based company has also denied its app represents a security threat and said no data from American users is shared with China.

In negotiations earlier this year, ByteDance had attempted to work out a US sale that would allow it to retain a substantial interest in the American operations, but the Trump administration has pushed back on that idea.

Zhang would still like a small slice of the operation, the people said. But Microsoft and its partner in the deal, Walmart, want full ownership of the business, one person said, while Oracle’s stance is not clear.

Analysts and bankers have estimated TikTok’s US business is worth at least US$20 billion, although the price would vary widely depending on what is included with the sale. The specific offers from Microsoft, which is teaming up with Walmart, and Oracle, which has won support from venture backers such as Sequoia Capital, could not be determined.

TikTok owner ByteDance doles out bonuses to assuage beleaguered staff

China made its 11th-hour entry into the TikTok process the last weekend of August, just as ByteDance had two offers in hand and planned to review them in hopes of making a final decision by the close of Sunday, a different person said. Beijing’s move blindsided the company, this person said.

Without any discussion or public announcement, China posted notification of new restrictions on the export of artificial intelligence technologies, including speech recognition and techniques for personalising content.

The aim of the rules is not necessarily to block a sale of the US operations, but to ensure Beijing is actively involved and to slow down the process, one person said. The review may well push finalisation of any agreement beyond the US elections in November, the person said.

TikTok’s algorithms are not a big sticking point for the bidders, the second person said. Both Microsoft and Oracle have the technical chops to build their own algorithms and would get data to fine-tune them, the person said.

Why the secret AI sauce behind TikTok is such a vital ingredient in luring potential buyers

ByteDance’s regulatory team and deal negotiators have discussed whether it is still possible to craft a sale that can win approval from both governments, an acquirer, venture investors and ByteDance itself.

Zhang is still operating from a position of strength. Privately held ByteDance is already worth US$140 billion, according to start-up tracker CB Insights, and is said to have generated more than US$3 billion of net profit on more than US$17 billion of revenue in 2019.

Investment bankers have begun pitching Zhang’s team on going public in China or Hong Kong, even amid growing scrutiny in the US, and demand for initial public offerings from technology companies in the market is surging. Zhang stands to make billions no matter what happens with Trump and TikTok US.

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