The bill, which President Biden has vowed to sign, was rushed through the House, but stalled in the Senate and faces constitutional challenges in the courts. But financial experts say the complex legislative process targeting video apps owned by China-based internet giant ByteDance could ultimately be simpler than any subsequent deal. There is.
The sale would require cutting off the company's technology backbone, potentially worth $150 billion, but has been subject to legal challenges and resistance from China, which has vowed to block any deal.
Supporters of the bill argue that it is not a ban, but the practical difficulties raise the possibility that TikTok will not be able to meet the six-month divestment deadline and would then lose 170 million users across the U.S. Users may be blocked from using TikTok.
Lee Edwards, a former M&A partner at law firm Shearman & Sterling, said, “As we often hear in the industry, this is a very risky transaction,'' using technical terminology to describe complex transactions that are fraught with uncertainty. He expressed and said. Outlook.
He added that it was “very quick and aggressive” to close a transaction of this size and complexity in six months, including passing regulatory reviews that may be required in countries around the world. . Buyers would be required to commit “significant management and strategic planning resources with a high risk of failure.”
One financial analyst estimates that TikTok, one of the world's most popular apps, will likely sell for more than $100 billion. And it may be low. TikTok generated $16 billion in sales in the U.S. last year, the Financial Times reported. That's a sales figure that could make the company worth up to $150 billion.
This price would set a new milestone for Big Tech acquisitions, entering territory that is untouched by most buyers. But any takeover by a rival tech giant would likely face tougher antitrust scrutiny in the U.S. and around the world, slowing the process if not stopping it altogether.
“The list of bidders is very limited,” said David Roca, former head of global technology mergers and acquisitions at multinational investment bank Citi. U.S. regulators “have to pick the poison. Do they want TikTok to be owned by the U.S., or do they want one or more Big Tech companies to get even bigger?”
A $100 billion deal would rank TikTok among the largest merger and acquisition deals in history, likely adding even more complexity and time. AOL's $182 billion merger with Time Warner in 2000 took about a year to complete.
Elon Musk's $44 billion acquisition of Twitter in 2022 took about six months to close — and it was a sale that Twitter's board desperately wanted. Facebook acquired WhatsApp in 2014 for $19 billion, which Forbes said was “hashed.” [chief] Mark Zuckerberg's home was locked down over several days and sealed in a bottle of Johnnie Walker Scotch.''Even though it took seven months to close once all regulatory frameworks were cleared. .
Nevertheless, the prospect of owning the Internet's crown jewels is spurring wealthy suitors into action. Former Treasury Secretary Steven Mnuchin, who runs a private equity firm, told CNBC last week that the New York Times reported that he had secured hundreds of millions of dollars in commitments from Saudi Arabia and other foreign funds in 2022. He said he is forming an investor group in anticipation. To buy TikTok.
As Treasury Secretary, Mnuchin urged former President Donald Trump in 2020 to push for a forced sale of TikTok. President Trump had demanded that the United States receive a “very large” share of the sale proceeds, but that was later halted in court. Mnuchin did not provide details about the group's investors or funding sources.
Bobby Kotick, the former head of video game giant Activision Blizzard, and Kevin O'Leary, a Canadian investor from the TV show “Shark Tank,” have both expressed interest in doing business with TikTok. But they may not have the funds to pursue a full-fledged acquisition, Rokara said, and pooling funds as part of an investment consortium would be a headache in itself. (Microsoft acquired Activision Blizzard last year for $69 billion, a deal that didn't close for 633 days after it was announced.)
With consortiums, “you don't know until the end if someone is really on board,” Rokara said. “The more parties we introduce, the more [the more] Progress just gets out of hand. ”
Dan Ives, a research analyst at Wedbush Securities, said in a note to investors that even beyond the “eye-popping” price, a sale of TikTok would likely face a series of “strong legal challenges.” “Claim” may be applied and the time may be further reduced.
“Separating the algorithm from ByteDance is going to be a very complex process,” Ives said. China and ByteDance said: “In our view, we would never allow our source code to be sold to a US tech company. So this all becomes a cobweb for potential strategic buyers.”
China said last year that it strongly opposes any forced sale of TikTok, and Foreign Ministry spokesperson Wang Wenbin said the House bill was built on the “logic of robbery” over valuable assets.
After President Trump forced a sale of TikTok in 2020, China added the recommendation algorithm at the heart of TikTok's video feed to an export control list, requiring any sale to receive government approval. The United States uses similar export controls to limit the technology that can be sold to China and other countries.
Liu Pengyu, a spokesperson for the Chinese embassy in Washington, said in a statement that the forced sale violates “the principles of fair competition and the norms of international trade.”
“It is unfair to use national security as an excuse to destroy successful companies from other countries,” Liu said. “It is wrong to try by any means to take away the good things that others have.”
Biden officials, speaking on condition of anonymity to discuss internal thinking, said the administration's goal is to sell TikTok rather than ban it in the interest of U.S. national security. The official accused China of demanding an absurd double standard, given China's longstanding policy of blocking foreign social media apps.
The forced sale of TikTok also raises fears of retaliation against American companies in China, as the Chinese government has taken retaliatory measures in the past. Some large US-owned companies, such as Apple, derive most of their revenue from China.
Top-level diplomacy between the U.S. and China has reached a point of hopelessness, with China tacitly approving chipmaker Broadcom's acquisition of cloud computing company VMware in November, shortly after Biden met with Chinese leader Xi Jinping in California. This sometimes undermined what appeared to be a free agreement.
The Chinese government had asserted regulatory authority over the deal, even though both companies are headquartered in the United States. But both companies also have strong business in China, and in the current tense diplomatic environment, “everyone thought this deal would be blocked,” Rokara said. (It is unclear why China relented, but some suspect that the meeting between Mr. Biden and Mr. Xi had an influence.)
But a forced sale of TikTok will be a tough pill for Chinese authorities to swallow. Paul Triolo, director of technology policy at the Washington-based business consulting firm Albright Stonebridge Group, who specializes in Chinese business and economics, said China probably has no idea what will happen to one of its trophy companies. He said he would be hesitant to let the US decide.
“Beijing opposes in principle both the political circus seen in Washington over the TikTok issue and any forced divestment involving companies that are under pressure entirely because of their ties to China.” he said.
He said the ByteDance technology that underpins TikTok is “an important intellectual property for the company, and the Chinese government will once again object to a forced sale involving AI algorithms setting a precedent.”
There are recent precedents for forced sales. In 2019, the United States demanded that a China-based technology company rescind its acquisition of LGBTQ+ dating app Grindr, citing federal concerns about the data of U.S. users, including military personnel. A company called Kunlun Tech sold the app to US-based investment group San Vicente Acquisition for his $608 million, which then took it public. However, it took a year to arrange the sale.
And the deal was just a fraction of the size of the anticipated sale of TikTok. At the time, Grindr had 13 million global users, while TikTok had 170 million users in the U.S. alone, and was sold for less than 1 percent of TikTok's expected sale price. The deal simply canceled the acquisition rather than separating the business from long-standing ownership.
TikTok pursued a number of full or partial acquisitions in 2020, including Microsoft, Walmart, and Oracle. Those companies may show renewed interest, especially considering TikTok's U.S. user base has nearly doubled in the past four years.
Oracle already has a working relationship with TikTok, first negotiated in 2020 under Secretary Mnuchin's lobbying efforts, to be a “trusted technology partner” to store U.S. user data and review algorithms. Is going. Oracle's home is also the namesake of TikTok's Project Texas proposal. The proposal is a $1.5 billion plan the company submitted to regulators in 2022 in hopes of meeting U.S. national security concerns.
Representatives for Oracle, Microsoft and Walmart did not respond to requests for comment.
It's unclear what ByteDance plans to do or whether it is preparing for such a divestiture request following years of regulatory pressure in Washington. TikTok CEO Shou Zi Chew said after the House vote that the company would exercise its “legal rights” to block the bill.
According to ByteDance, 60% of the company's shares are held by major international investors, including U.S. investment firms Susquehanna Investment Group and General Atlantic, some of whom are using their shares to invest in TikTok. There is a possibility that the company plans to take control of the spin-off. The remaining 40 percent will be split between ByteDance's Chinese founders and 150,000 employees, several thousand of whom are American.
Some of them may pursue their own actions against being forced to sell a stake in the world's biggest success story. Unless the Chinese shareholders are fully bought out, federal regulators such as the Committee on Foreign Investment in the United States (CFIUS), which has been negotiating with TikTok for years, could seek further scrutiny of whether the deal goes far enough. .
It's also unclear how the sale will divide TikTok's offices and employees. The company has 7,000 employees in the United States, operates two global headquarters in Los Angeles and Singapore, and has nine offices around the world, including New York, London, Paris, Jakarta, and Tokyo. Masu. (ByteDance has no offices in China, where it is based.)
If the bill passes the Senate quickly, the 180-day sales period could end just before the 2024 presidential election, allowing new owners to control the app's rules and inner workings for their own political gain. Questions may arise about how to make changes.
But if TikTok is not sold, the federal government could try to block the platform by putting pressure on Apple, Google, and other tech companies that operate and distribute app stores, cloud computing, and web hosting services. There is sex.
Bruce Schneier, a security engineer and lecturer at the Harvard Kennedy School who investigated the possible consequences last year, said the process could be easily circumvented through loopholes or workarounds.
A more effective blanket ban, he said, “would require a national firewall, like the one China currently has, to monitor and censor Americans' access to the internet.”
