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TikTok Could Still Be Shut Down in the US (Update)

Douglas A. McIntyre

Published: August 29, 2020 8:48 am

Last Updated: August 30, 2020 6:18 am

Update: New Chinese rules may limit the export of artificial intelligence and could severely limit TikTock’s ability to operate in the U.S. A Chinese government official said that TikTok parent ByteDance may want to reconsider the sale of TikTok’s American operation. This could undermine any M&A effort, which would leave TikTok’s operations in the U.S. in limbo and make potential buyers wary.

TikTok probably will be sold to a group led by Microsoft, perhaps in a partnership with Walmart. Or, enterprise software giant Oracle may have the winning bid. President Trump says he will essentially shut down TikTok if no buyer is found in less than a month. TikTok’s parent, China-based ByteDance, may have to shutter its U.S. operations if there is no ownership resolution.

ByteDance still has high hurdles as it attempts to resolve the situation. The New York Post reports ByteDance has begun to consider plans for keeping employees should there be no business to employ them. The conclusion is that it can’t, because one or more of three problems may not be overcome.

The first issue, and least likely, is that ByteDance will not sell because it believes offers are too low. At one point, a price of $40 billion was floated. That figure has dropped to $20 billion, according to some sources. TikTok reportedly wants $30 billion. Buyers believe they have a large advantage because of the Trump deadline. If ByteDance thinks it can get an extension, or have the decision reversed, perhaps by a federal court, it may hold out for something closer to the high-end price. That is a game of chicken with the Trump administration, which could trigger a sudden shuttering of its operations.

A more likely problem is that the administration believes that TikTok’s link to its system of users outside the United States is unbreakable, and that means users data can still be compromised permanently. In essence, U.S. operations cannot really and entirely be separated from what is seen as a way to capture data about American users and transfer it to China. Even if this is not the case, the administration may argue otherwise. TikTok may be shut down well before a buyer has made a final offer.

The third problem is that a buyer could spend tens of billions of dollars for TikTok and find that the administration has made a determination afterward to close TikTok as a national threat. TikTok workers would keep their jobs under a new owner, for a while. Alternatively, potential buyers may anticipate the chance of this action by the administration and not make offers at all. Will an American company risk tens of billions of dollars if this is a possibility?

The administration is notably fickle and prone to fast decisions that affect entire industries. It has kicked China 5G infrastructure provider Huawei out of the United States and continues to lobby allies to do so as well. The global conversion to the 5G ultrafast wireless standard is worth tens of billions of dollars to Huawei and its rivals. Sales of Huawei smartphones also have been undermined. It does not matter financially to Huawei if this is part of a larger trade war between the United States and China or it is a decision based on the claim that Huawei technology can be used as a way to collect U.S. data. It has lost a massive opportunity.

Administration fickleness may be the reason TikTok is not sold. It adds a layer of complexity to an M&A dance between ByteDance and possible U.S. buyers. That means a positive outcome for TikTok in the United States is still in question.