U.S. Demands ByteDance Sell TikTok

The U.S. Treasury Department’s Committee on Foreign Investment (Cfius), a panel of multiple U.S. agencies involved in national security, has demanded that TikTok’s owners in China sell their stakes in the company or risk a ban on the video-sharing app in the United States.  TikTok has been in talks for months about addressing U.S. concerns around Chinese control of the company’s data and algorithm. 

TikTok is under scrutiny for its Chinese ownership, which U.S. officials fear could lead to manipulation or spying by China on Americans.  Last year, TikTok agreed to implement a number of changes in a plan called Project Texas.  The plan included bringing in American company Oracle to host U.S. user data and review its software, and also appointing a three-person government-approved oversight board.

Congress has also raised objections to TikTok, with lawmakers concerned that the TikTok app may be forced to share data with the Chinese government or used as an influence tool by China.  As a result, TikTok CEO Chew has been asked to testify before a House committee next week about the app’s data privacy and security practices and the company’s relationship with the Chinese Communist Party.  The U.S. Congress, European Commission, and the Canadian civil service have already banned staff from using the app because of concerns about how the company collects data.

Bloomberg News reported that TikTok’s leadership has been discussing the possibility of separating from its owner, ByteDance Ltd, to help address concerns about national security risks. One possibility is that ByteDance could retain some form of ownership through a passive structure.  A divestiture, which could result in a sale or initial public offering, is considered a last resort to be pursued if TikTok’s existing proposal with U.S. national security officials doesn’t get approved. Even then, the Chinese government would have to agree to such a transaction.

The U.S. has not been convinced that the Project Texas plan goes far enough to address security concerns and considers a sale of TikTok the best solution.  ByteDance Ltd has a valuation of $220 billion and is considered one of China’s highest-profile companies worldwide.  According to Bloomberg Intelligence, TikTok itself could be valued at $40 billion to $50 billion based on social media multiples and other factors.  China’s government has said it would scrutinize any deal for TikTok carefully, for fear data or algorithms might up in non-Chinese hands. 

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