Big call and big question marks about possible TikTok sell-off

TikTok is one of the most popular and largest social media apps in the world – with major brand recognition and loyal users.

It can also be one of the most difficult to sell.

That’s the conundrum facing TikTok as lawmakers in Washington advance a bill that would force the app’s Chinese parent company, ByteDance, to sell the app or it could be banned in the United States. The bill was passed by the House of Representatives on Wednesday, but could face an uphill climb in the Senate.

Rumors are already swirling on Wall Street about who might be interested in buying TikTok. The rumblings grew louder Thursday after Steven Mnuchin, a former Treasury secretary, told CNBC that he was “trying to put together a group to buy TikTok because they should be owned by American companies.” Mr. Mnuchin said he had spoken to a “combination of American investors” about such a deal.

But any potential buyer may face several roadblocks. The Chinese government could block the sale. Under the House-passed bill, the US president would have to confirm that a deal would cut ByteDance’s app.

And then there’s the price tag – almost certainly a big price tag. Research firm CB Insights recently estimated that ByteDance was worth $225 billion, although it is less clear how much the US version of TikTok would cost on its own.

The price would limit the pool of potential buyers to a coalition of private equity firms; a corporate giant, such as Microsoft; or a combination of the two. But it’s unclear whether antitrust regulators would allow a big company like Microsoft (or Alphabet, owner of YouTube) to buy the app.

A spokesperson for the Federal Trade Commission declined to comment. The Justice Department declined to comment.

The last time TikTok was up for sale, ByteDance talked to Microsoft about a potential deal before choosing Oracle, the cloud computing company. Oracle brought in Walmart as a partner, but just as the two were about to buy a stake in the app, the deal collapsed under geopolitical pressure.

Oracle did not respond to a request for comment. Microsoft, which also considered buying the app in 2020, declined to comment.

TikTok has said the legislation is unnecessary because the app does not pose a risk to Americans’ data and does not tailor its feed to the whims of the Chinese government. It has proposed a plan that would see U.S. user data stored on domestic servers controlled by Oracle.

Beijing could apply additional government surveillance. This week, Wang Wenbin, a spokesperson for the Chinese Foreign Ministry, condemned US lawmakers’ attempts to force a sale or ban TikTokalthough he stopped short of saying the country would outright prevent such a move.

Analysts are skeptical that the Chinese government would allow such a move.

“You’re telling me China is going to sell this great company to an American company so they can profit from the profitability and give up all the geopolitical benefits of a ban?” said Rich Greenfield, an analyst at LightShed Partners.

It is unclear how advanced Mr. Mnuchin’s talks with investors are and whether participants have taken the formal steps necessary to pursue a potential transaction, such as hiring a financial advisor or formally approaching ByteDance. A spokesman for Mr. Mnuchin declined to comment.

Mr. Mnuchin has a long history with TikTok. From February 2017 to January 2021, as Secretary of the Treasury, he headed the Committee on Foreign Investment in the United States, a group of federal agencies that investigates international involvement in American companies. CFIUS backed the government’s push to get ByteDance to sell its TikTok business in 2020.

Mr. Mnuchin, a former Goldman Sachs partner, now runs a private equity firm, Liberty Strategic Capital. It is one of many private equity firms facing a decline in deal volume amid increasing regulatory pressure and rising interest rates. The company recently provided $450 million in financing to buy the beleaguered New York Community Bank.

For TikTok’s U.S. investors, including Susquehanna Investment Group and General Atlantic, a sale would almost certainly be preferable to a ban. These investors could choose to transfer their stake in ByteDance to a new owner. General Atlantic declined to comment and a representative for Susquehanna did not respond to a request for comment.

“I have to think that most retail investors in TikTok, including some Americans, would want to see a divestiture rather than a ban, because a ban is going to destroy a lot of value, given the size and value of TikTok’s US user base,” says Peter Harrell, a former national security official in the Biden administration.