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Microsoft talks to buy TikTok's U.S. operations spark ire in China

Published 08/03/2020, 02:31 AM
Updated 08/03/2020, 02:15 PM
© Reuters. People walk past the Bytedance headquarters building in Beijing

© 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:MSFT) 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:FB) and Snap Inc (N:SNAP).

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

© Reuters. FILE PHOTO: Illustration picture of Tiktok with U.S. and Chinese flags

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.

Latest comments

joker politics.. so embarrassing for US still tolerating this lun.atic
Have you heard about a new bitcoin wallet company giving out spendable $55 on sign up?
Way too many Chinauh trolls here. Don't force Bytedance to divest Tiktok. Just simply ban it. Problem solved.
Trump bot alert!!
rogue Nation rogue apps
Trump is telling the world: if us companies can't compete, the foreign companies have to leave. let us pray 🙏
Trump needs to know...China is a Lion. If he keeps poking at the Lion, she will Roar. If she Roars, worldwide markets will tumbled back down.
If Chinese is a lioness (you used "she"), then the US is a lion. You know what the outcome will be when you put the two together.
This is just showing how desperate Trump is trying to stay in office...Lol...his days are numbered.
you're totally right. Trump is literally a walking economic collapse. no wonder he went bankrupt 3 times
Trump is going to take down the whole world this time. He leveraged the *****USD to oblivion. I wouldn’t be surprised if it loses Reserve Currency Status because of his failures.
I don't think this is a problem...if it is then, VPN will become the norm going forward.
They profit bigly from selling usa operation. They r mad because they lost their propaganda machine, and cant spy on the west and take down videos that r against china.
u r just a dictator tool.
u r hiding ur real identity that tells u r chinese propaganda or u r scared
You're so brainwashed, hard to believe it... I feel sorry for you.
There are plenty of US apps and websites that are  banned in china and there are some chinese (baidu) among others that are banned from operating in the US so I don't know why China has a problem with this...they do it all the time ALL the time.
If you make subversion in the USA you also go to jail.
nobody believes your lie. You think you’re smarter than others, but you’re not.
Because China bans those they think are not complianting with their law from the beginning, they would not wait until one becomes no.1 in the market then ban it and rob
madness? china should not banned facebook as well.
China ban all and copied all (google,youtube,twitter,facebook etc)
Facebook denied censorship because of US Congress.
US paper print money and buy the whole world by saying you are guilty and fault(give me 99.9999discount) when US ever pay the money it own
Just copy the app service and provided it 'only' for America. That's what the Chinese always do
Facebook has tried several times to copy tiktok but failed.
“shotgun wedding” Hahahahaha That gets, “most catchy phrase of the day”!
Washington is in a panic and trying to figure out how to put a leash on the huge data harvesting pit bull- China!! China openly tracks their citizens with cameras/facial recognition/GPS tracking/electronic currency. Nobody has the right to harvest data on U.S. citizens, but at this point, we've let technology go to far. How do you stop it?
USA is a dictator country now. Communist American !
Lee stop joking
The American empire.
😂
Nationalizing assets or businesses is a crime that communist regimes typically do at the beginning of their existence. It is sad that the US has embarked on this trajectory. China will have to require a mammoth compensation for this act of arbitrariness, which violates the basic property rights recognized in any civilized society
Chinese shouldn't be happy that US has a joker for president. It's good for the whole world to have serious leaders and not TrumpPutinBoris type of clow.ns
All is guessing. What Google did is publicly denounce the law and quit.
  You mean the problem is with Chinese dictatorial laws?
at list this joaker has ***to stans up to china. unlike dems..
Accused China steal , but US rob in broad day light! Thanks to today technology whole world see how US rob. US looks really ugly day by day. Thanks to Trump
asc
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