2 August 2020 — Moon of Alabama
In 2017 the Chinese company ByteDance bought the Shanghai-based video app Musical.ly in a $1 billion deal and relaunched under the name TikTok. The app allows its users to create and share short videos with special effects.
It was a great success and the app now has more than 80 million active users in the U.S. alone. The Chinese version Douyin is separate and has even more.
ByteDance has other apps, mostly in the Chinese market, that also generate advertising revenues. The company is valuated at some $140 billion. The TikTok part is valuated at at least $50 billion. Some 70% of the ByteDance outside investors are U.S. private equity firms.
At one point these U.S. investors decided to raid the successful business. The White House found that to be a great idea and actively supported the plan.
The company was put under investigation by the Committee on Foreign Investment in the United States (CFIUS). That made little sense as neither ByteDance nor TikTok planned to acquire a U.S. company. The published reason was that Chinese access to user data of TikTok might have national security implications. That made little sense.
TikTok does not collect user data beyond what is needed to run the application and to share the videos. Its Chief Executive Officer is an American citizen. The user data is stored in the U.S. and TikTok has hired nearly 1,000 people for its U.S. team and is looking for more. The Chinese government is unlikely to have interest in the preferred video motives of U.S. teens.
But the pressure to sell the very successful business continued to increase:
Last week, the US Senate Committee on Homeland Security and Governmental Affairs unanimously passed a Bill that would bar US 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.
Then the U.S. investors in ByteDance made an offer:
ByteDance had received a proposal from some of its investors, including Sequoia and General Atlantic, to transfer majority ownership of TikTok to them, Reuters reported on Wednesday. The proposal valued TikTok at about $50 billion, but some ByteDance executives believe the app is worth more than that.
Under ever building pressure ByteDance finally agreed to sell the U.S. part of TikTok but it insisted on keeping a minority stake.
Yesterday it was reported that Microsoft would be the ‘chosen’ partner:
TikTok, the Chinese-owned video app that has been under scrutiny from the Trump administration, is in talks to sell itself to Microsoft and other companies as President Trump weighs harsh actions against the business, including forcing TikTok to divorce itself from its parent company, ByteDance, said people with knowledge of the discussions.
On Friday, Treasury Secretary Steven T. Mnuchin, who leads the [CFIUS] committee, briefed the president on the divestment plan. But it remains unclear what the president will do …
Later on Friday, Mr. Trump said he planned to take action as soon as Saturday. He added that he was not leaning toward allowing an American company to buy TikTok’s U.S. operations.
Today ByteDance has given up. It no longer insists on keeping a minority share in the business but will sell the whole U.S part of TikTok:
China’s ByteDance has agreed to divest the U.S. operations of TikTok completely in a bid to save a deal with the White House, after President Donald Trump said on Friday he had decided to ban the popular short-video app, two people familiar with the matter said on Saturday.
U.S. officials have said TikTok under its Chinese parent poses a national risk because of the personal data it handles. ByteDance’s concession will test whether Trump’s threat to ban TikTok is a negotiating tactic or whether he is intent on cracking down on a social media app that has up to 80 million daily active users in the United States.
ByteDance was previously seeking to keep a minority stake in the U.S. business of TikTok, which the White House had rejected. Under the new proposed deal, ByteDance would exit completely and Microsoft Corp would take over TikTok in the United States, the sources said.
Some ByteDance investors that are based in the United States may be given the opportunity to take minority stakes in the business, the sources added.
There has been no announcement yet of the sales price.
It will now likely be less than the $50 billion the U.S. investors once offered. They will now have the whole business. Microsoft is not in the teen app business. It was only brought in to make the deal more plausible:
Under ByteDance’s new proposal, Microsoft will be in charge of protecting all U.S. user data, the sources said. The plan allows for another U.S. company other than Microsoft to take over TikTok in the United States, the sources added.
Microsoft will get some commission for lending its name to the deal. Trump will get some huge campaign donations for facilitating the raid. He or his family probably also have a real stake in the deal via one or more of the the private equity firms.
Such an open robbery of a foreign company that made the mistake of being successful in the U.S. market reminds one of some skullduggeries in Russia:
Mark Ames @MarkAmesExiled –
I remember Putin/Kremlin getting pilloried for doing this same thing: wage big public scare campaign against a successful business, claiming it’s a national security threat—force it to sell to domestic company in bed with your state security services
The Putin/Kremlin thing was usually a bit different. Some Russian oligarchs who had acquired Russian natural resources by robbing or killing their competition tried to sell those assets to ‘western’ companies. In those cases Russia had a real national interest at stake. To keep control of Russia’s resources the Kremlin had to step in to prevent such deals. There were also foreign ‘investors’ who bought up important Russian companies for little money or robbed the Russian state via tax fraud like Bill Browder. They are not comparable to a harmless teeny video app business.
The whole TikTok robbery has of course nothing to do with national security or with access to TikTok user data. The NSA surely already has such access while the Chinese government has no plausible interest in it.
This is purely a raid against a Chinese company to rob it of a successful part of its business. This raid was carried out by U.S. investors with intensive help from the U.S. government.
We can be sure that other Chinese companies – and the ‘lying communists‘ in the Chinese government – will learn from it.