October 20, 2020

TikTok sale hits snag as China places restrictions on tech sales


A symbol of TikTok (Douyin) is pictured at The Place shopping mall at dusk on August 22, 2020 in Beijing, China.

VCG | Visual China Group | Getty Images

A deal for TikTok’s U.S. business is facing new hurdles as Washington’s deadline for a sale approaches, putting the app in danger of facing an effective ban.

An announcement of a deal had been expected as soon as Tuesday, CNBC previously reported, but that day came and went with no news of a transaction. On Friday, Chinese officials introduced new restrictions on technology exports that could require Chinese approval for TikTok to sell its algorithm, which is part of the core value of the app.

As of Monday, Oracle and a joint bid from Microsoft and Walmart were the top contenders for the sale, but The Wall Street Journal reported late Tuesday that China’s new restrictions had complicated and extended the talks. A deal with the algorithm had been expected to fall in the $20 billion to $30 billion range, sources previously told CNBC. That price would likely drop if the key technology could not be included.

The new rules out of China have prompted Zhang Yiming, founder of TikTok’s parent company ByteDance, to reconsider his options, Bloomberg reported Tuesday. The need for approval from officials in the U.S. and China could push the deal past the November U.S. presidential election, a source familiar with the matter told Bloomberg.

ByteDance and the companies seeking to buy TikTok’s U.S. business are considering four options to navigate the new restrictions from China, Reuters reported Wednesday, citing sources familiar with the matter.

  • The first option is to sell TikTok without the algorithm, potentially expediting the sale but requiring the new owner to inject an alternative into the app.
  • The second option is to negotiate an up to a year-long transition period with the Committee on Foreign Investment in the United States (CFIUS), though its unclear if China’s rules would allow this in the required time frame.
  • The third option is to seek approval from China to sell the algorithm to the chosen U.S. company.
  • The fourth option is for the new buyer to license TikTok’s algorithm from ByteDance. However, it’s unclear if U.S. authorities would be content with any continuing relationship between TikTok and the China-based ByteDance after the sale.

If deal talks extend into November or later, the app could face an effective ban in the U.S. under President Donald Trump’s executive orders. Trump initially signed an order that would bar U.S. businesses from transacting with ByteDance as of Sept. 20, and later signed an order forcing ByteDance to sell or spin off its U.S. TikTok business by Nov. 12.

A potential change in administrations after Election Day could give TikTok another chance to negotiate with the U.S. government. TikTok has sued the Trump administration over the ban, claiming it denied the company due process.

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