After a series of pressures from the Trump administration, U.S. media reported in late August that the TikTok deal was expected to be finalized. But with China’s recent adjustment to release the “China’s list of export-restricted export-restricted technologies”, the acquisition talks are once again fraught with uncertainty. Whether TikTok’s core algorithms are included in acquisitions has always been a key issue.
Originally published as Reuters: TikTok bidders come up with four options to resume negotiations
Author Bear Aarrand.
Reuters exclusive: Bidders interested in buying TikTok are discussing four options to resume negotiations.
ByteDance, TikTok’s parent company, has been in talks with several U.S. companies about selling the business after the Trump administration continued its crackdown on what it called a “threat to U.S. national security.” Mr. Trump has repeatedly threatened that a deal must be done by September 15.
But on August 28th China’s Ministry of Commerce and Ministry of Science and Technology re-released the China Export Ban Export Restricted Technology Catalog, which restricts exports under the terms of the “personalized information push service technology based on data analysis”, which was interpreted by the media as directly targeting TikTok’s core algorithmic technology, which also led to a new stage in the negotiations over the deal.
Reuters reported that the new rules, which have led to speculation that TikTok’s sale would require approval from the Chinese government, have left potential bidders Microsoft and Oracle hesitant.
While the name of the bidder was not disclosed, the report quoted three anonymous sources as saying potential bidders interested in buying TikTok’s business were currently discussing four options to recover and close the deal.
First option: The buyer completes the acquisition of TikTok without acquiring the core algorithm.
Such a plan would circumvent export controls issued by The Chinese, but it would be a “major gamble” for Microsoft and Oracle, which must quickly find alternatives to TikTok’s core algorithms.
The second option: buyers negotiate a “transition period” of up to one year with the Committee on Foreign Investment in the United States (CFIUS), which oversees the deal.
The uncertainty with this option, however, is that it is not clear whether China’s new rules will allow this to be done within the allotted time.
A third option: seek approval from the Chinese government to allow ByteDance to sell TikTok’s core algorithm to a US buyer.
In particular, Reuters noted that the plan “will amplify geopolitical risks” given the current deterioration in relations between china and the United States over trade, cybersecurity, the outbreak and other issues, suggesting that little is likely to happen.
The fourth option: The buyer obtains TikTok’s algorithm authorization from ByteDance.
However, this could raise concerns with CFIUS, which wants ByteDance to have no connection to TikTok’s U.S. operations once the deal is possible. Under an executive order signed by Mr. Trump on August 14, ByteDance is required to sell or divest all TikTok assets operating in the United States within 90 days.
ByteDance, Microsoft and Oracle declined to comment on the reuters exclusive. China and the U.S. did not respond for the time being.
On September 1st the Wall Street Journal reported that TikTok’s core algorithm had been thought to be included in the deal until new Chinese export control rules were introduced.
For bidders, “TikTok without algorithms is like a luxury car with a cheap engine” because a large part of TikTok’s value lies in its core algorithms, which would completely change their vision of buying TikTok if the deal did not include them, according to a source familiar with the negotiations.
But at the same time, it has been revealed that one of the bidders could still buy TikTok without algorithms and write new algorithms for them.
On August 31, Chinese Foreign Ministry spokesman Zhao Lijian stressed at a regular press conference that the main purpose of China’s publication of the China Export Ban and Export Limitation Technology Catalog is to standardize the management of technology exports, promote scientific and technological progress and foreign economic and technological cooperation, and safeguard national economic security.
He said that the U.S. side’s attempts to use economic bullying and political maneucraft against non-U.S. companies, whether it is political coercion or government-enforced transactions are tantance, not only violate market principles and international rules, but also the U.S. side has always touted the principles of market economy and fair competition.