Microsoft talks to buy TikTok’s U.S. operations spark ire in China By Reuters

© Reuters. People walk past the Bytedance headquarters building in Beijing


By Yingzhi Yang and Kane Wu

BEIJING/HONG KONG (Reuters) – A potential shotgun wedding to Microsoft Corp (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 (O:) and Snap Inc (N:).

Shares in Microsoft, which owns the business social media network LinkedIn (NYSE:) 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 (NASDAQ:) 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.

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Exclusive: TikTok’s Chinese owner offers to forego stake to clinch U.S. deal

© Reuters. FILE PHOTO: TikTok logos are seen on smartphones in front of displayed ByteDance logo in this illustration

By Echo Wang and Alexandra Alper

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 has up to 80 million daily active 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.

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 (NASDAQ:) 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 White House declined to comment on whether Trump would accept ByteDance’s concession. ByteDance in Beijing did not respond to a request for comment

Under ByteDance’s new proposal, Microsoft will be in charge of protecting all U.S. user data, the sources said. The plan allows for another U.S. company other than Microsoft to take over TikTok in the United States, the sources added.

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 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.


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 (NYSE:), 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.

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TikTok’s ad launch faces challenges from U.S. ban threat, hoaxes By Reuters

© Reuters. FILE PHOTO: A TikTok logo is displayed on a smartphone in this illustration

By Sheila Dang

(Reuters) – TikTok’s launch on Wednesday of a new platform to court small business advertisers is fraught with challenges, especially after the Trump administration’s threat this week to impose a ban on China-based social media apps.

The new self-service ad platform, which lets companies purchase ads without needing to speak with a sales team, is key to TikTok’s ability to turn its red hot short video sharing app into a viable advertising business.

But the possible ban floated by U.S. Secretary of State Mike Pompeo late on Monday, and new questions about the Chinese-owned company’s ability to control hate speech and misinformation, cloud the launch, ad buyers said.

“The trust issues are there because it’s a new app,” said an executive at a major ad agency, adding TikTok needs to make clear to advertisers what it will do “if the chance is more than zero,” that ads could show up next to harmful content.

The launch coincides with an international backlash against hate speech and misinformation that has proliferated on other services including Facebook Inc (NASDAQ:) and Twitter Inc (NYSE:), prompting an unprecedented advertising boycott of some of these social media platforms.

In recent months, the debunked “PizzaGate” conspiracy theory about a child sex ring run out of a Washington pizza parlor by Democratic elites resurfaced on TikTok for a new generation of users, the New York Times reported.

TikTok said it is committed to protecting brands from appearing next to objectionable content through content moderation technology and human moderators. It also said it has never provided user data to the Chinese government and would not do so if asked, when asked about Pompeo’s statements.

These issues, along with confusion over TikTok’s benefit for smaller advertisers will need to be resolved if TikTok wants to attract more advertisers, ad agency executives said.

Wednesday’s global launch of the self-serve ad platform, which had previously been in beta testing, will include a music library and video-editing tools to help brands make ads that match the style of TikTok videos.

The app said it will also provide $100 million in free ad credits globally, which small businesses can apply for as they have been particularly hard-hit by the coronavirus pandemic.

“Our users want to identify with brands, and people identify with their local businesses and local restaurants,” said Blake Chandlee, TikTok’s vice president of global business solutions, in an interview with Reuters.

Beijing-based ByteDance, TikTok’s owner, booked $5.6 billion in revenue during its first quarter, with the bulk coming from ads sold on the China-based version of TikTok called Douyin rather than TikTok itself, Reuters reported previously.

TikTok will also face stiff competition from other rivals that appeal to younger audiences such as Snapchat, which has also appealed to small businesses with “direct response” ads that are favored by smaller companies.

Local and smaller businesses favor direct response advertising that encourage sales or website visits. These types of ads can be difficult for social media platforms to develop, said Darren D’Altorio, head of social media at ad agency Wpromote, which counts Instacart and Samsung (KS:) as clients.

“I don’t think TikTok is there yet with respect to direct response,” he said.

Snapchat shares surged 9% on Tuesday, long after news of the potential U.S. ban on Chinese apps broke.

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