CFIUS Gives Microsoft 45 Days For TikTok Deal Talks As ByteDance Shifts HQ To London

Just weeks after abandoning a planned move to London – a cancellation that was reportedly politically motivated, according to myriad reports in the British press (more on that here) – ByteDance will reportedly shift its headquarters to London from Beijing.

The decision, which was motivated by the Trump Administration’s threats to bar TikTok from the American market on national security grounds, follows a quiet agreement between British government ministers and ByteDance. Last night, we reported the confirmation that Microsoft had restarted talks with ByteDance regarding a possible acquisition of TikTok.

The company confirmed the reports Monday, and it appears ByteDance has finally shown itself willing to play ball with the US, despite the brief period of uncertainty over the weekend after ByteDance and Microsoft reportedly broke off talks pending more guidance from the administration.

Whoever buys TikTok will control the app and its global operations, but ByteDance will retain ownership of a separate app called Douyin (“TikTok”) which is Chinese-language and built for the Chinese internet.

Microsoft says it’s aiming to wrap up talks by Sept. 15, giving us a 6-week timeline during which we expect the White House to tone down its rhetoric a little bit, even if the administration does move ahead with imposing new restrictions on apps like WeChat, and companies like Huawei.

As investors tried to piece together exactly what was happening behind the scenes, Reuters came through last night with exactly that: a deeply-sourced report citing White House officials who explained that President Trump’s comments on Friday – that the US would move to ban TikTok – elicited serous pushback from his advisors and Republican lawmakers like Lindsey Graham. Trump initially opposed the idea of allowing ByteDance to sell TikTok to Microsoft. But he quickly relented, and by Sunday night, GOP lawmakers had provided enough assurances to BD and Microsoft CEO Satya Nadella that a deal to buy TikTok would receive the administration’s blessing when the time comes for the CFIUS review.

For decades, American law has required a government board to weigh in – and ultimately approve – every foreign deal involving major American assets and ensure that the deal doesn’t impact American national security priorities. China’s wave of ambitious buyouts around the world over the past 10 years – remember, China owns Smithfield foods, one of the biggest pork producers in the world, and a company that’s technically an American company – has made western governments wary of Beijing’s “neo-imperialist” approach.

Once Trump assented to the deal, CFIUS reportedly gave the two companies 45 days to work out a deal (hence the Sept. 15 deadline shared by Microsoft).

Lindsey Graham tweeted over the weekend that a Microsoft buyout of TikTok would be a “win-win” for America and China.

What’s the right answer?

Have an American company like Microsoft take over TikTok.

Win-win.

Keeps competition alive and data out of the hands of the Chinese Communist Party.

— Lindsey Graham (@LindseyGrahamSC) August 1, 2020

TikTok has roughly 100 million users in the US, and has been valued at $50 billion, reportedly. Though it’s unclear what prices MSFT is looking at.

For some reason, we suspect Beijing doesn’t see things Graham’s way. And as Reuters pointed out, whether Microsoft can successfully separate TikTok’s technology from ByteDance in a way that would successfully assuage security concerns remains to be seen. It’s probably one of the biggest risk factors standing in the way of any eventual deal.

A key issue in the negotiations will be separating TikTok’s technology from ByteDance’s infrastructure and access, to alleviate U.S. concerns about the integrity of personal data. ByteDance owns a Chinese short video app called Douyin that was based on the same code used for TikTok.

Not to say that it can’t be overcome. But it certainly explains the intense government scrutiny at every stage in the process, as CFIUS told Reuters it intends to monitor the negotiations.

The negotiations between ByteDance and Microsoft will be overseen by CFIUS, a U.S. government panel that has the right to block any agreement, according to the sources, who requested anonymity ahead of a White House announcement. Microsoft cautioned in its statement that there is no certainty a deal will be reached.

One idea under consideration is to give Microsoft and ByteDance a transition period to develop technology for TikTok that will be completely separate from ByteDance, one of the sources said.

Microsoft said it did not intend to provide further updates until there was a definitive outcome in the negotiations.

The scrutiny facing TikTok isn’t unprecedented: Scrutiny from CFIUS and the White House recently forced a Chinese company to divest its ownership stake in the American LGBTQ-focused hookup app “Grindr”.

But we can’t help but suspect that Trump’s Friday remarks about barring the app from the US have left a bad taste in Beijing’s mouth. We fear the deal talks might be fraught with ongoing conflict as both companies struggle to balance their own priorities with the demands of their respective governments.

As much as we appreciate a good compromise…