In just a matter of day’s the fate of TikTok changed from a company that could be banned in the US by the President to a takeover target. In late July, President Trump said that the social media platform, which his administration considers a national security risk, could be banned in the US because of its Chinese ownership.
At the same time, this was taking place, Microsoft was exploring a takeover bid for TikTok’s American operations. On August 2, 2020, Satya Nadella, Microsoft’s CEO, and Mr. Trump spoke which has allowed Microsoft chief time to flesh out the potential acquisition.
The upshot of the conversation between the US President and CEO Nadella Microsoft has six weeks to seal a deal for TikTok. The company says that it has 100 million users in the U.S. In a statement, Microsoft said it would act rapidly to generate a deal Beijing-based ByteDance, aiming to wrap it up by Sept. 15. The security review will be left up to Microsoft and the company has pledged to keep all American users’ data within the U.S. and sever any connections to technology that remain in China.
How Much Will TikTok Cost Microsoft?
Both companies ByteDance and Microsoft have a vested interest in negotiating a deal. If the 6-weeks pass, and there is no deal, Microsoft will just walk away. Although the company will lose out on a social media platform that has already gained traction, it will not lose as much as ByteDance. TikTok after 6-weeks will be banned in the US and the company will have to divest its US assets. This could work but making sure that it severs its data will be a tall task, and without having a champion in the US, TikTok could be doomed. The value of the company is steep, and it will be interesting to see what TikTok will cost. In the last week of July a group of investors, including Sequoia Capital and General Atlantic, floated a $50 billion bid for TikTok. Currently, TikTok is not a public company, but Microsoft is active in online trading across the globe.
What is in it For Microsoft?
Microsoft has some social media platforms, like LinkedIn, but have not been able to infiltrate the teen, pre-work age group. The purchase of TikTok could create competition for Facebook and Google, leveraging gaming areas that Microsoft has a handle on like Minecraft and Xbox. What is surprising is that large tech is under fire. Apple, Facebook, Amazon, and Alphabet testified in front of Congress in late July to discuss the issues related to monopoly activity and anticompetitive behavior. Surprisingly, Microsoft was not in attendance. It does seem odd with this backdrop that the White House would push TikTok into Microsoft’s arms.
The Risks are for Both Companies
Without a successful merger, Microsoft will be left without a competitive social media product to face off against Facebook and Google. The high-profile nature could also make it difficult for many of Microsoft’s managers who might need to spend time fending off assaults from Congress. For ByteDance, an unsuccessful merger could mean that its widely popular US operation could be cut off from US users, per President Trump which would make it very difficult to continue to remain popular with the very fickle teen group.