Why a sale of TikTok wouldn’t be easy
Legislation that could ultimately mandate a sale of TikTok is moving forward. But any divestiture by Chinese parent company ByteDance will likely prove challenging.
The House of Representatives on Wednesday approved the bill to ban TikTok unless ByteDance sells the app to a buyer the government agrees to. The bill would still have to be passed by the Senate and signed by the president. Assuming this happens, the options for potential buyers would be extremely limited, a potential spin-off would pose many problems, and the Chinese government or US regulators could try to block all of these options.
Here’s what you need to know.
What type of sales is required under the invoice?
To avoid a ban, ByteDance would have had to arrange a sale within six months that guaranteed TikTok was not under the control of a foreign adversary — a group that includes China. ByteDance could not maintain any relationship with the newly independent app or control over its algorithm, which sends users a scrolling feed of videos tailored to their interests.
Under the legislation, the president will have to agree that the sale meets these conditions.
What exactly would be offered for sale?
ByteDance and TikTok have not said how they would handle a sale if necessary. But legal experts say that in the event of a sale, ByteDance would likely have to decide between selling TikTok globally or trying to shut down its U.S. operations.
ByteDance should no longer have any connection with TikTok in the future. So it is unclear whether that would be the case at all possible to wind down its US operations to comply with legislation, while the US version of the app can still use ByteDance’s algorithm and talk to TikTok users in other countries.
Why would it be a challenge to sell TikTok?
Even just the US part of TikTok would be expensive, with some analysts estimating it could be worth more than $50 billion.
That probably makes it too expensive for a competitor like Snap. The tech giants that can afford it, like Google and Microsoft, will likely face antitrust concerns over continued growth.
A group of investors could also band together to raise the money they need to buy the app.
ByteDance could also take an alternative route, such as turning the app into a standalone publicly traded company by offering shares on the stock market.
Senator Mark Warner, the Virginia Democrat who chairs the Intelligence Committee and has sponsored the new legislation, said in an interview that a divestment could mean a partnership between the United States and its allies.
“It would be great if it was an American company,” he said. “But if it wasn’t an American company, it could be a joint venture between an American company and a European company.”
What could get in the way of a sale?
If the bill becomes law, ByteDance will likely challenge its legality in U.S. courts. China could also try to block sales of the app.
Early Wednesday, the Chinese government criticized the legislation before it was approved by the House of Representatives, saying the U.S. government was “resorting to hegemonic moves when it could not succeed in fair competition.” And it is not the first time that Beijing has indicated that it could intervene. When former President Donald J. Trump tried to force ByteDance to sell TikTok in 2020, China imposed export restrictions on technology that sounded like TikTok’s content recommendation algorithm.
At the time, both Oracle and Walmart appeared willing to buy shares in the company, but the deal never materialized.
Regulators could also make it difficult for an American company to buy TikTok. The European Union and the Biden administration have repeatedly challenged acquisitions by major tech companies such as Microsoft, Amazon, Google and Meta, which owns Facebook and Instagram, using antitrust laws.
Has such a forced sale ever taken place before?
Yes. During the Trump administration, the government forced a Chinese company to sell the dating app Grindr. Officials were concerned that the app — which includes a field where users can display their HIV status — could pass sensitive information about Americans to China. A group of investors eventually bought Grindr from its Chinese owner, Beijing Kunlun Tech, for more than $600 million.
But TikTok operates on a much larger scale than Grindr, with 170 million users in the United States alone. If ByteDance is forced to sell the app, it will be a major escalation in a digital cold war between the United States and China over who gets control of crucial technology.