The Trump administration is working to dispossess the Chinese company ByteDance by blackmailing it to sell its valuable TikTok business to a U.S. company for a bargain price. This to the benefit of yet unknown people.
False allegation over the security of TikTok user data were used to threaten the prohibition of the video app in its U.S. market. In the U.S. alone the app is used by more than 80 million people. It plays an important part in the youth culture and music business. Faced with a potential close down of its prime business in one of its most profitable markets ByteDance had no choice but to agree to negotiate about a sale.
ByteDance declined an offer by two of its U.S. based minority investors to buy the business for $50 billion as that price was far below its presumed value. The White House stepped in to find a new buyer with enough change to pay for a deal. As the largest social media companies – Facebook, Apple, Google and Twitter – are already under congressional investigations for their monopoly positions in U.S. markets none of them could be the potential buyer. Facebook has in fact just launched a rip-off of the TikTok product under the name Reels. It is trying to poach TikTok 'creators' for its own service. Facebook owner Mark Zuckerberg has warned of Chinese competition. He would be the biggest winner should TikTok be thrown out of the U.S. market.
The White House finally came up with Microsoft as a potential buyer. But Microsoft has historically been unsuccessful in the social media business. It also does other business with China and is reluctant to get involved in a move that could damage that business.
Despite Microsoft's lack of interest President Trump personally pressed for a shotgun marriage. The Democrats are supporting him in this. But neither ByteDance nor Microsoft really want to make the deal.
ByteDance would prefer to move the TikTok business into an independent company:
TikTok could become totally independent from its Chinese owner ByteDance to continue operating overseas, according to a source who has been briefed on the discussions.
But the source said that despite reports that the video-sharing platform would be taken over by Microsoft, ByteDance founder Zhang Yiming and investors were reluctant to sell to the US company.
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[I]f it is able to continue operating in the US, the board of ByteDance will agree to a complete spin-off for the overseas version of the app, which operates under the name Douyin in China.The new entity would keep the TikTok name, but will have different management and will no longer answer to ByteDance.
“Except for Zhang Yiming, almost all those in the room favour such a spin-off,” the source said. “The mood is kind of: ‘the founder will be out and the house will be ours’.
“But even for Zhang himself, there’s really no other option because the app will be killed if you don’t let it go.”
The spin-off would cover all markets except China where a ByteDance owned app similar to TikTok is run under the name Douyin. A sale to Microsoft would only include the markets in the U.S., Canada, New Zealand and Australia. (Note that Britain is the only member of the 5-eyes club missing here.)
That Microsoft is not really wanting the deal can be gleaned for the convoluted statement it issued yesterday. This is clearly unprecedented language in a public company's communication:
Following a conversation between Microsoft CEO Satya Nadella and President Donald J. Trump, Microsoft is prepared to continue discussions to explore a purchase of TikTok in the United States.
Microsoft fully appreciates the importance of addressing the President’s concerns. It is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits to the United States, including the United States Treasury.
Microsoft will move quickly to pursue discussions with TikTok’s parent company, ByteDance, in a matter of weeks, and in any event completing these discussions no later than September 15, 2020. During this process, Microsoft looks forward to continuing dialogue with the United States Government, including with the President.
The discussions with ByteDance will build upon a notification made by Microsoft and ByteDance to the Committee on Foreign Investment in the United States (CFIUS).
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Microsoft may invite other American investors to participate on a minority basis in this purchase.
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Microsoft appreciates the U.S. Government’s and President Trump’s personal involvement as it continues to develop strong security protections for the country.
This ass kissing of Trump is not what Microsoft is used to do. Satva Nadella was clearly pressed into publishing this. Such a statement would usually include language about increasing shareholder value or better user experience. This statement has none of that standard sweet talk.
The stock market seems to believe that a takeover of TikTok would be profitable for Microsoft:
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I have my doubts that Microsoft can successfully run a social network business. This one would be restricted to just four countries and it would likely lose access to the continuing development of the app. Where is the potential growth for such a restricted application?
And how will China react if Microsoft takes part in the U.S. raid of ByteDance's business? While China is only contributing some 2% to Microsoft's overall revenue the company's biggest R&D center outside of the U.S. is in China. It contributes to its global success:
“[There has been an] explosion of innovation in China,” [Microsoft President Brad] Smith said. “One of the things that we at Microsoft have long appreciated is the enormous ingenuity of the engineering population of China.”
Microsoft's X-Box game station as well as other hardware it sells is at least partially developed and produced in China. Some of Microsoft's Chinese engineers might have there own ideas on how China should retaliate to the attack on a successful Chinese company. The Trump administration sees that danger and it is pressing Microsoft to get rid of all its relations with China:
White House trade adviser Peter Navarro suggested on Monday that Microsoft could divest its holdings in China if it were to buy TikTok.
“So the question is, is Microsoft going to be compromised?” Navarro said in an interview with CNN. “Maybe Microsoft could divest its Chinese holdings?”
Leaving China would surely damage Microsoft's long term business. For a global company that country is a too big potential market to be left at the wayside.
But the real question about the mafia raid on ByteDance is who is destined to profit from it.
Today Trump said (vid) that if Microsoft closes the deal a substantial amount should be paid to the Treasury because his administration 'enabled the deal'. He likely didn't consult a lawyer before making that wrongheaded statement.
But who are the "other American investors" who are invited "to participate on a minority basis in this purchase". Reuters had already reported that 'minority investor' clause. Is the wider Trump family involved in this?
Why is that term so important for Trump that Microsoft has felt a need to repeat it in what is essentially a public terms letter addressed to Trump?