(WSJ) Several investment and technology firms are exploring a potential deal for the U.S. operations of TikTok, which is facing a Trump administration ban, but they each would have to surmount hurdles at least as high as the Chinese social-media platform’s main suitor, Microsoft Corp.
Twitter Inc. has had preliminary talks about a potential combination with TikTok in the U.S., The Wall Street Journal reported Saturday. It is unclear whether Twitter will pursue a deal, which would face significant challenges and almost certainly need help from other investors, given Twitter’s size.
TikTok’s parent, Beijing-based ByteDance Ltd., has been scrambling to find a way to keep its popular video-sharing service alive in the U.S. after the Trump administration declared the app a national security threat because of its Chinese ownership. Several investment firms with ties to Twitter or ByteDance also could play a role in any transaction involving Twitter or Microsoft, people familiar with the talks say.
Among them is venture-capital giant Sequoia Capital, whose China-based affiliate first invested in Bytedance in 2014. Today Sequoia funds hold just over 10%, according to a person familiar with the investment, a stake worth more than $10 billion based on recent secondary trades of Bytedance shares. At that value, the investment would rank among the most successful venture capital deals of all time.
Doug Leone, Sequoia’s global managing partner, in recent weeks has been pressing contacts in the administration, including Treasury Secretary Steven Mnuchin and senior White House adviser Jared Kushner, to craft a solution that would enable TikTok to keep operating in the U.S., according to people familiar with those discussions. Mr. Leone has been among the few Silicon Valley leaders who openly back Donald Trump, and has contributed to his reelection campaign.
ByteDance’s shareholders have a lot at stake, given the importance of TikTok for the Chinese parent, which investors have valued at $100 billion or more this year. Other investors include private-equity firm General Atlantic and Japanese investment giant SoftBank Group Corp., for which ByteDance has been a bright spot at a time when several of its other investments have faltered. SoftBank itself would like to throw its hat in the ring as a possible TikTok suitor, according to a person familiar with its thinking, but as a foreign company remains a long shot for consideration. General Atlantic and SoftBank declined to comment.
Some of ByteDance’s investors had earlier prepared a bid that valued all of TikTok at more than $30 billion, according to one person briefed on the bid. It couldn’t be learned whether those other investors are currently involved in potential bids for the U.S. operations.
One person involved in the deal said “everyone and their mother has been calling,” but that it isn’t clear which parties are serious and which are being taken seriously by ByteDance.
Microsoft has been negotiating for weeks with ByteDance, and is considered the front-runner for any possible deal for TikTok. Microsoft said on Aug. 2 that it was pursuing a deal for TikTok’s operations in the U.S., Australia, Canada and New Zealand, and that it planned to conclude talks by Sept. 15.
Microsoft said in that statement that it might invite other U.S. investors to participate in a TikTok deal on a minority basis. The software giant doesn’t need the financial help. Its market value is more than $1.6 trillion and it reported more than $136 billion in cash and short-term investments as of June. It isn’t clear what the valuation of TikTok’s operations in the U.S. and those other three countries would be, but estimates run into the tens of billions of dollars.
Microsoft declined to comment on why it might want to involve other investors. Mark Moerdler, an analyst at Bernstein Research, said Microsoft might want to give existing U.S. investors in ByteDance a way into the deal, but that bringing others on board also could add more complexity to an already tricky transaction.
While TikTok isn’t profitable, its wildly popular video-sharing format has won it more than 100 million U.S. users, making it a potentially valuable asset for many tech companies. But even if they wanted to be involved in a TikTok bid, some other tech giants could have a harder time than Microsoft. Apple Inc., Amazon.com Inc., Google-parent Alphabet Inc., and Facebook Inc. all are currently the subjects of antitrust investigations by U.S. regulators and Congress, and their chief executives were hauled in front of the House Judiciary Committee last month to face bipartisan anger over their competitive practices. Microsoft has largely avoided such scrutiny.
Because it is much smaller, Twitter has reasoned that it would be unlikely to face the same level of antitrust scrutiny as Microsoft or other potential bidders, said people familiar with the discussions.
Still, Twitter is seen as a long-shot bidder, and would almost certainly need help from other investors if it does buy TikTok’s U.S. operations. The company has far less financial firepower than other major tech players. Twitter started making a consistent profit in the past couple of years, but reported a $1.23 billion loss in the latest quarter. Twitter reported $7.8 billion in cash and short-term investments as of June.
But Twitter does have high-powered investors such as private-equity firm Silver Lake, which in March invested $1 billion in the messaging platform and has made a series of other big investments to shore up major tech brands during the coronavirus crisis.
Discussions remain fluid and all potential suitors for TikTok face potential complications stemming from the role of Mr. Trump, who has several times jolted participants with statements or actions. While the president and his aides had been threatening for weeks to ban TikTok, his executive order on Thursday, which would bar people in the U.S. from transactions with ByteDance 45 days from the date of the order, took participants by surprise, people close to the situation said.
Twitter has recently had separate run-ins with the White House. Mr. Trump is Twitter’s most high-profile user, but he has lately criticized the company for labeling or restricting some of his posts that it says violate its policies. Such actions have fueled the president’s claim that Silicon Valley tech firms are biased against him, which the companies have denied. Twitter has said the posts in question violated its policies.
Sequoia’s lobbying effort with the administration kicked into high gear last month after Secretary of State Mike Pompeo said the U.S. might ban Chinese social media apps including TikTok, a comment that came a week after India banned TikTok and dozens of other Chinese apps.
Mr. Leone told associates that he would reach out to Messrs. Mnuchin and Kushner to see what it would take to save TikTok. General Atlantic Chief Executive William Ford has also lobbied for the company, said a person familiar with his efforts.
At first, Bytedance and its investors proposed spinning off TikTok, shifting votes to American investors, but maintaining existing economic ownership, said one person familiar with the negotiations. After the White House said the ownership structure also needed to change, the company and investors floated the possibility of including an American operational partner, said this person. The White House said that could work. Bytedance CEO Yiming Zhang reached out to Microsoft, a company where he worked briefly and whose culture he liked, to discuss a possible deal.
Source: Wall Street Journal by Georgia Wells, Rolfe Winkler and Cara Lombardo
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