US flags are seen near a TikTok logo. Picture: REUTERS/FLORENCE LO
US flags are seen near a TikTok logo. Picture: REUTERS/FLORENCE LO

New York/Washington — President Donald Trump agreed to allow Microsoft to negotiate the acquisition of popular short-video app TikTok only if it could secure a deal in 45 days, three people familiar with the matter said on Sunday.

The move represents an about-face for Trump and prompted the US tech giant to declare its interest in the blockbuster social media deal that could further inflame US-China relations. Trump said on Friday he plans to ban TikTok amid concerns that its Chinese ownership represents a national security risk because of the personal data it handles.

The proposed acquisition of TikTok, which boasts 100-millions US users, would offer Microsoft a rare opportunity to become a competitor to social media giants such as Facebook and Snap. Microsoft also owns professional social media network LinkedIn.

Trump had dismissed the idea of a sale to Microsoft on Friday. But after a discussion between Trump and Microsoft CEO Satya Nadella, the Redwood, Washington-based company said on Sunday that it will continue negotiations to acquire TikTok from ByteDance, and that it aims to reach a deal by September 15.

This is a deadline that was put to ByteDance and Microsoft by the committee on foreign investment in the US (CFIUS), which scrutinises deals for potential national security risks, according to the sources.

Trump changed his mind after pressure from some of his advisers and many in his Republican party, one of the sources said. Banning TikTok would alienate many of its young users ahead of the US presidential election in November, and would likely trigger a wave of legal challenges. Several prominent Republican legislators put out statements in the last two days urging Trump to back a sale of TikTok to Microsoft.

“A win-win in the making,” Republican Senator Lindsey Graham tweeted in response to Trump’s new stance on Sunday.

The negotiations between ByteDance and Microsoft will be overseen by CFIUS, a US government panel that has the right to block any agreement, according to the sources, who requested anonymity ahead of a White House announcement. Microsoft cautioned that there is no certainty a deal will be reached.

“Microsoft fully appreciates the importance of addressing the president’s concerns. It is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits to the US, including the US Treasury,” Microsoft said.

ByteDance and the White House did not immediately respond to requests for comment on the Microsoft talks. In a statement issued late on Sunday that did not mention TikTok, ByteDance said it faced “complex and unimaginable difficulties” in going global.

As relations between the US and China deteriorate over trade, Hong Kong’s autonomy, cyber security and the spread of the novel coronavirus, TikTok has emerged as a flashpoint in the dispute between the world’s two largest economies.

State-backed newspaper China Daily on Monday called ByteDance the victim of a “witch hunt” from the US, and said Washington had not provided evidence to support its allegation that TikTok posed a threat to US national security.

Under the proposed deal, Microsoft said it would take over TikTok’s operations in the US, Canada, Australia and New Zealand. It said it would ensure that all private data of TikTok’s US users is transferred to and remains in the US.

Microsoft may invite other American investors to acquire minority stakes in TikTok, the company added. About 70% of the outside capital ByteDance has raised has come from the US.

It is not clear how much Microsoft could pay for TikTok. Reuters reported last week that ByteDance’s valuation expectations for the app exceeded $50bn, though US pressure to divest it could lower that price tag.

A key issue in the negotiations will be separating TikTok’s technology from ByteDance’s infrastructure and access, to alleviate US concerns about the integrity of personal data. ByteDance owns a Chinese short video app, Douyin, that was based on the same code used for TikTok.

One idea under consideration is to give Microsoft and ByteDance a transition period to develop technology for TikTok that will be separate from ByteDance, one of the sources said.

Microsoft said it does not intend to provide further updates until there is a definitive outcome in the negotiations.

App scrutiny

The US has been increasingly scrutinising 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 sold Grindr, a popular gay dating app it bought in 2016, for $620m after being ordered by CFIUS to divest.

In 2018, CFIUS forced China’s Ant Financial to scrap plans to buy MoneyGram International over concerns about the safety of data that could identify US citizens.

ByteDance was valued at as much as $140bn earlier this year when one of its shareholders, Cheetah Mobile, sold a small stake in a private deal, Reuters has reported. The start-up’s investors include Japan’s SoftBank Group.

Reuters

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