Microsoft talks to buy TikTok's U.S. operations spark ire in China
Yingzhi Yang, Kane Wu
BEIJING/HONG KONG (Reuters) - A potential shotgun wedding to Microsoft Corp (MSFT.O) for TikTok’s U.S. operations provoked an outcry on Monday on Chinese social media as well as criticism from a prominent Chinese investor in TikTok owner ByteDance.
The U.S. tech giant formally declared its interest on Sunday after President Donald Trump, who has cited national security risks posed by the Chinese-owned short video app, reversed course on a planned ban and gave the two firms 45 days to come to a deal.
The proposed acquisition of parts of TikTok, which boasts 100 million U.S. users, would offer Microsoft a rare opportunity to become a major competitor to social media giants such as Facebook Inc (FB.O) and Snap Inc (SNAP.N).
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Shares in Microsoft, which owns the business social media network LinkedIn and is also seeking to buy TikTok’s Canadian, Australian and New Zealand interests, rose nearly 3% in early trades on Monday.ByteDance has not publicly confirmed the sale talks. But in an internal letter to staff on Monday seen by Reuters, the company’s founder and CEO Zhang Yiming said the firm had started talks with a tech company it did not identify to clear the way “for us to continue offering the TikTok app in the U.S.”
Clinching a deal that will satisfy all parties and potentially act as a lightning rod for U.S.-China relations will be a tall order.
People close to the situation have told Reuters that all of TikTok could be worth $50 billion, but the forced sale of the U.S. division and some other units alone will likely yield much less than that.
“A forced deal under Washington’s shotgun could open up for endless litigations if it should result (in) an unfavorable outcome to existing private shareholders,” said Fred Hu, chairman of Primavera Capital Group, an investor in ByteDance and one of China’s best known private equity groups.
Hu said Microsoft was a credible buyer but questioned how selling large parts of TikTok’s operations at such an early stage of its growth could ever be a good deal for ByteDance.
“It absolutely makes no sense. Bytedance is an innocent victim of the mad politics and mad geopolitics. It is a sad outcome for Bytedance, for entrepreneurial capitalism, and for the future of global commerce,” he said.
Tech bankers in Asia said investment banks working on the deal would have to be careful not to antagonize Trump.
“This is not a standard M&A situation...this is hard to predict,” said one senior banker with a U.S bank in Hong Kong, saying that it would be a question of how to structure a deal in a way that would keep Washington happy.
Zhang’s letter to staff also said ByteDance did not agree with the stance taken by the Committee on Foreign Investment in the United States (CFIUS), which scrutinizes deals for national security risks, that it must fully divest TikTok’s U.S. operations.
“We disagree with this CFIUS conclusion,” the letter said but added: “...we understand the decision in the current macro environment.”
ByteDance did not respond to Reuters requests for comment.
The Chinese government declined to comment specifically on the Washington’s move to force a sale of TikTok’s U.S. operations.
The United States has been “stretching the concept of national security”, presuming that companies are guilty without evidence, China’s foreign ministry spokesman Wang Wenbin told a briefing after being asked about U.S. actions against Chinese software companies.
The topic “ByteDance has agreed to divest TikTok’s U.S. operations” was one of the most discussed subjects on China’s Twitter-like Weibo platform on Monday, with over 920 million views.
Some commentators criticized ByteDance, saying it has not shown as much backbone as Huawei Technologies, also in the crosshairs of U.S.-China tensions and now on a U.S. trade blacklist.
“(ByteDance) kneeled down so fast that it didn’t even wait for the Chinese government to retaliate,” said one comment that was ‘liked’ over 5,000 times.
While TikTok is ByteDance’s most well known app globally, the company makes the bulk of its revenue from advertising on Chinese apps including Douyin - a Chinese version of TikTok - and news aggregator app Jinri Toutiao.
Reporting by Yingzhi Yang and Yilei Sun in Beijing and Kane Wu in Hong Kong; Additonal reporting by Lun Tian Yew in Beiing; Writing by Brenda Goh; Editing by Edwina Gibbs and Saumyadeb Chakrabarty
Exclusive: TikTok's Chinese owner offers to forego stake to clinch U.S. deal - sources
Echo Wang, Alexandra Alper, David Shepardson
NEW YORK/WASHINGTON (Reuters) - China’s ByteDance has agreed to divest the U.S. operations of TikTok completely in a bid to save a deal with the White House, after President Donald Trump said on Friday he had decided to ban the popular short-video app, two people familiar with the matter said on Saturday.
U.S. officials have said TikTok under its Chinese parent poses a national risk because of the personal data it handles. ByteDance’s concession will test whether Trump’s threat to ban TikTok is a negotiating tactic, or whether he is intent on cracking down on a social media app that boasts it has 100 million users in the United States.
Trump told reporters onboard Air Force One late on Friday that he would issue an order for TikTok to be banned in the United States as early as Saturday. “Not the deal that you have been hearing about, that they are going to buy and sell... We are not an M&A (mergers and acquisitions) country,” Trump said.
Late on Saturday, Peter Navarro, director of the White House’s office of trade and manufacturing policy, told Fox News that Trump would be taking action on TikTok on Sunday or Monday.
ByteDance was previously seeking to keep a minority stake in the U.S. business of TikTok, which the White House had rejected. Under the new proposed deal, ByteDance would exit completely and Microsoft Corp would take over TikTok in the United States, the sources said.
Some ByteDance investors that are based in the United States may be given the opportunity to take minority stakes in the business, the sources added. About 70% of ByteDance’s outside investors come from the United States.
“The administration has very serious national security concerns over TikTok. We continue to evaluate future policy,” the White House said in a statement, declining to comment on whether Trump would accept ByteDance’s concession. ByteDance in Beijing did not respond to a request for comment.
“We are here for the long run. Continue to share your voice here and let’s stand for TikTok,” TikTok U.S. general manager Vanessa Pappas said in a video published on the app on Saturday.
Under ByteDance’s new proposal, Microsoft, which also owns professional social media network LinkedIn, will be in charge of protecting all of TikTok’s U.S. user data, the sources said. The plan allows for a U.S. company other than Microsoft to take over TikTok in the United States, the sources added.
“What’s the right answer? Have an American company like Microsoft take over TikTok. Win-win. Keeps competition alive and data out of the hands of the Chinese Communist Party,” Republican Senator Lindsey Graham wrote on Twitter on Saturday.
Microsoft did not respond to a request for comment.
As relations between the United States 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.
ByteDance has been considering a range of options for TikTok amid U.S. pressure to relinquish control of the app, which allows users to create short videos with special effects and has become wildly popular with U.S. teenagers.
ByteDance had received a proposal from some of its investors, including Sequoia and General Atlantic, to transfer majority ownership of TikTok to them, Reuters reported on Wednesday. The proposal valued TikTok at about $50 billion, but some ByteDance executives believe the app is worth more than that.
ByteDance acquired Shanghai-based video app Musical.ly in a $1 billion deal in 2017 and relaunched it as TikTok the following year. ByteDance did not seek approval for the acquisition from the Committee on Foreign Investment in the United States (CFIUS), which reviews deals for potential national security risks. Reuters reported last year that CFIUS had opened an investigation into TikTok.
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The United States has been increasingly scrutinizing app developers over the personal data they handle, especially if some of it involves U.S. 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 Co Ltd sold Grindr LLC, a popular gay dating app it bought in 2016, for $620 million after being ordered by CFIUS to divest.
In 2018, CFIUS forced China’s Ant Financial to scrap plans to buy MoneyGram International Inc over concerns about the safety of data that could identify U.S. citizens.
ByteDance was valued at as much as $140 billion earlier this year when one of its shareholders, Cheetah Mobile, sold a small stake in a private deal, Reuters has reported. The startup’s investors include Japan’s SoftBank Group Corp.
The bulk of ByteDance’s revenue comes from advertising on apps under its Chinese operations including Douyin - a Chinese version of TikTok - and news aggregator app Jinri Toutiao, as well as video-streaming app Xigua and Pipixia, an app for jokes and humorous videos.
China will not accept U.S. 'theft' of TikTok: China Daily
The United States’ “bullying” of Chinese tech companies was a consequence of Washington’s zero-sum vision of “American first” and left China no choice but “submission or mortal combat in the tech realm”, the state-backed paper said in an editorial.
China had “plenty of ways to respond if the administration carries out its planned smash and grab”, it added.
Microsoft Corp (MSFT.O) said on Monday it was in talks with ByteDance to buy parts of TikTok after U.S. President Donald Trump reversed course on a plan to ban the app on national security grounds and gave the firms 45 days to strike a deal.
U.S. Secretary of State Mike Pompeo said over the weekend that Trump would take action shortly against Chinese software companies that shared user data with the Chinese government.
The Global Times newspaper, which is also government-backed, said U.S. treatment of ByteDance and Huawei Technologies [HWT.UL], now on a U.S. trade blacklist, was indicative of U.S. efforts to separate its economy from China’s.
China had “limited ability” to provide protection to these Chinese companies by retaliating against U.S. companies because the United States had technological superiority and influence with its allies, it added.
“China’s opening-up to the outside world and disintegrating the U.S. decoupling strategy should be priorities,” it said in an editorial.
The Global Times is published by the People’s Daily, the official newspaper of China’s ruling Communist Party.
Reporting by Brenda Goh; Editing by Stephen Coates
White House adviser Navarro suggests Microsoft divest China holdings
WASHINGTON (Reuters) - White House trade adviser Peter Navarro suggested on Monday that Microsoft Corp (MSFT.O) could divest its holdings in China if it were to buy the Chinese owned short-video app TikTok.
“So the question is, is Microsoft going to be compromised?” Navarro said in an interview with CNN. “Maybe Microsoft could divest its Chinese holdings?”
President Donald Trump has agreed to give China’s ByteDance 45 days to negotiate a sale of popular short-video app TikTok to Microsoft, three people familiar with the matter said on Sunday.
U.S. officials have said TikTok, under its Chinese parent, poses a national risk because of the personal data it handles. Trump said on Friday he was planning to ban TikTok in the United States after dismissing the idea of a sale to Microsoft.
In an earlier interview with Fox News Channel, Navarro said any potential buyer of TikTok that has operations in China could be a problem.
Navarro cited Microsoft’s Bing search engine and Skype platform, saying they “effectively are enablers of Chinese censorship, surveillance and monitoring.”
Microsoft has over 6,000 employees in China and offices in Beijing, Shanghai and Suzhou.
While the company has been there for decades, business from China accounts for just over 1% of the company’s revenue, Bloomberg reported Microsoft President and Chief Legal Officer Brad Smith stating at a conference in January.
Widespread piracy of Windows and Office once prevented the company’s cash cow from bringing in money.
The company is now pushing its Azure cloud service to customers in China, via a partnership with local data service provider 21Vianet.
Its crown jewel is arguably a research center in Beijing, which has produced a number of alumni who have gone on to executive positions at Alibaba, ByteDance, Xiaomi, and facial recognition unicorns Sensetime and Megvii.
It also was the site of origin for the so-called “ResNet” paper, currently the most-cited AI paper according to Google scholar metrics.
Reporting by Doina Chiacu, Susan Heavey and Pete Schroeder; Additional reporting by Josh Horwitz; Editing by Nick Zieminski and Christopher Cushing
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