The White House is preparing to force Chinese internet giant ByteDance to shed the U.S. operations of TikTok, as potential buyers, including Microsoft Corp, are already in talks to buy the popular short video app, people familiar with the matter said on Friday.
The move would be the culmination of U.S. national security concerns over the safety of the personal data that TikTok handles. It would represent a major blow for the Beijing-based company, which became one of only a handful of truly global Chinese conglomerates thanks to TikTok’s commercial success.
It is was not immediately clear how the separation would happen and what ByteDance would do with the rest of TikTok’s global operations. An announcement on ByteDance’s plans for TikTok could come as early as Friday, the sources said, requesting anonymity because the matter is confidential.
Microsoft is one of the companies that have been in exploratory talks to buy TikTok, one of the sources said. While the Redmond, Washington-based company already owns professional social media network LinkedIn, it would face fewer regulatory hurdles in acquiring TikTok than its more direct competitors, such as FaceBook Inc, the source said.
“While we do not comment on rumors or speculation, we are confident in the long-term success of TikTok,” TikTok said in a statement.
Treasury Secretary Steve Mnuchin said on Wednesday that TikTok was under a national security review by the Committee on Foreign Investment in the United States and that he would be making a recommendation to President Donald Trump this week.
“We are looking at TikTok, we may be banning TikTok, we maybe doing some other things or a couple of options, but a lot of things are happening,” Trump told reporters on Friday.
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.
Last week, the U.S. Senate Committee on Homeland Security and Governmental Affairs unanimously passed a bill that would bar U.S. federal employees from using TikTok on government-issued devices. It will be taken up by the full Senate for a vote. The House of Representatives has already voted for a similar measure.
ByteDance has proactively been considering a range of options for TikTok amid pressure from the United States 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 has received a proposal from some of its investors, including Sequoia and General Atlantic, to transfer majority ownership of TikTok to them. The proposal values TikTok at about $50 billion, but some ByteDance executives believe the app is worth more than that.
ByteDance has also fielded acquisition interest in TikTok from other companies and investment firms.
ByteDance acquired Shanghai-based video app Musical.ly in a $1 billion deal in 2017 and relaunched it as TikTok the following year. ByteDance did not seek approval for the acquisition from CFIUS, which reviews deals for potential national security risks. Last year, CFIUS launched 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, sold a small stake in a private deal. The startup’s investors include SoftBank Group Corp.
The bulk of its 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.
Some of the company’s other overseas apps include work collaboration tool Lark and music streaming app Resso.
TikTok CEO Kevin Mayer, a former Walt Disney Co executive, said in a blog post on Wednesday that the company was committed to following U.S. laws, and was allowing experts to observe its moderation policies and examine the code that drives its algorithms.