TikTok: sales in the US should not be so easy to happen – 03/14/2024 – Market

Legislation that could require the sale of TikTok in the United States is moving forward. But any kind of divestment by its parent company ByteDance will likely be challenging.

The House of Representatives approved this Wednesday (13) the bill to prohibit TikTok from operating in the country, unless ByteDance sells the application to a government-approved buyer.

The bill would still need to pass the Senate and be signed into law by the president. However, assuming that happens, options for potential buyers would be extremely limited, the potential spin-off would struggle, and the Chinese government — or U.S. regulators — could try to block one of those options.

Here’s what you need to know.

What type of sale is required by the bill?

To avoid a ban on the app, ByteDance would have to arrange a sale that ensures TikTok is not under the control of a foreign adversary — including those in China — within six months.

ByteDance could not maintain any relationship with the newly independent app or control over its algorithm, which sends users a personalized feed of videos based on their interests.

According to the legislation, the president will need to agree that the sale meets these conditions.

What, exactly, would be offered for sale?

ByteDance and TikTok have not said how they would handle a sale, if one becomes necessary. But legal experts say that in the event of a sale, ByteDance would likely have to decide between selling all of TikTok globally or spinning off its U.S. business.

ByteDance would not be allowed to have any connection with TikTok in the future. Therefore, it is unclear whether it would be possible to separate its US operations to comply with the legislation, while still allowing the US version of the app to use ByteDance’s algorithm and communicate with TikTok users in other countries.

Why would it be challenging to sell TikTok?

Even the U.S. portion of TikTok alone would be expensive, with some analysts estimating it could be worth more than $50 billion.

This will likely make the app too expensive for a competitor like Snap. While tech giants that could afford the purchase, like Google or Microsoft, would likely face antitrust concerns about continued growth.

A group of investors could also come together to raise the money needed to buy the app.

ByteDance could also take an alternative route, such as turning the app into an independent public company offering shares on the market.

Senator Mark Warner, Democrat of Virginia, who chairs the Intelligence Committee and has supported the new legislation, said in an interview that divestment could involve a partnership between the United States and its allies.

“It would be great if it was an American company,” he said. “But if it wasn’t an American company, it could be a joint venture between an American company and a European company.”

What could prevent the sale?

If the bill becomes law, ByteDance is likely to challenge its legality in US courts. China could also try to block the company’s sale.

Earlier Wednesday, the Chinese government criticized the legislation even before it was approved by the House, saying the US government was “resorting to hegemonic moves when it cannot succeed in fair competition.” And it is not the first time that Beijing has signaled that it could intervene.

In 2020, when President Donald Trump tried to force ByteDance to sell TikTok, China imposed export restrictions on technologies that resembled TikTok’s content recommendation algorithm.

At the time, both Oracle and Walmart appeared ready to buy stakes in the company – but the deal never materialized.

Regulators could also make it harder for a U.S. company to buy TikTok. The European Union and the Biden administration have repeatedly challenged takeovers by big technology companies such as Microsoft, Amazon, Google and Meta, which owns Facebook and Instagram, using antitrust laws.

Has a forced sale like this ever happened before?

Yes. During the Trump administration, the government forced a Chinese company to sell the dating app Grindr. Authorities were concerned that the app — which includes a field for users to display their HIV status — could expose sensitive information about Americans to China. A group of investors ended up purchasing Grindr from its Chinese owner, Beijing Kunlun Tech, for more than $600 million.

But TikTok operates on a much larger scale than Grindr, with 170 million users in the United States alone.

If ByteDance is forced to sell the app, it would be a major escalation in a digital cold war between the United States and China over who controls the technology.