Category: TikTok Divestment

TikTok Sale Extended…Again

By Chris Castle

Imagine if the original Napster had received TikTok-level attention from POTUS?  Forget I said that.  The ongoing divestment of TikTok from its parent company ByteDance has reached yet another critical point with yet another bandaid.  Congress originally set a January 19, 2025 deadline for ByteDance to either sell TikTok’s U.S. operations or face a potential ban in the United States as part of the Protecting Americans from Foreign Adversary Controlled Applications Act or “PAFACA” (I guess “covfefe” was taken). The US Supreme Court upheld that law in TikTok v. Garland.

When January 20 came around, President Trump gave ByteDance an extension to April 5, 2025 by executive order. When that deadline came, President Trump granted an extension to the extension to the January 19 deadline by another executive order, providing additional time for ByteDance to finalize a deal to divest. The extended deadline now pushes the timeline for divestment negotiations to July 1, 2025.

This new extension is designed to allow for further negotiation time among ByteDance, potential buyers, and regulatory authorities, while addressing the ongoing trade issues and concerns raised by both the U.S. and Chinese governments. 

It’s getting mushy, but I’ll take a stab at the status of the divestment process. I might miss someone as they’re all getting into the act. 

I would point out that all these bids anticipate a major overhaul in how TikTok operates which—just sayin’—means it likely would no longer be TikTok as its hundreds of millions of users now know it.  I went down this path with Napster, and I would just say that it’s a very big deal to change a platform that has inherent legal issues into one that satisfies a standard that does not yet exist.  I always used the rule of thumb that changing old Napster to new Napster (neither of which had anything to do with the service that eventually launched with the “Napster” brand but bore no resemblance to original Napster or its DNA) would result in an initial loss of 90% of the users. Just sayin’.

Offers and Terms

Multiple parties have expressed interest in acquiring TikTok’s U.S. operations, but the terms of these offers remain fluid due to ongoing negotiations and the complexity of the deal. Key bidders include:

ByteDance Investors:  According to Reuters, “the biggest non-Chinese investors in parent company ByteDance to up their stakes and acquire the short video app’s U.S. operations.” This would involve Susquehanna International Group, General Atlantic, and KKR. ByteDance looks like it retains a minority ownership position of less than 20%, which I would bet probably means 19.99999999% or something like that. Reuters describes this as the front runner bid, and I tend to buy into that characterization. From a cap table point of view, this would be the cleanest with the least hocus pocus. However, the Reuters story is based on anonymous sources and doesn’t say how the deal would address the data privacy issues (other than that Oracle would continue to hold the data), or the algorithm. Remember, Oracle has been holding the data and that evidently has been unsatisfactory to Congress which is how we got here. Nothing against Oracle, but I suspect this significant wrinkle will have to get fleshed out.

Lawsuit by Bidder Company Led by Former Myspace Executive:  In a lawsuit in Florida federal court by TikTok Global LLC filed April 3, TikTok Global accuses ByteDance, TikTok Inc., and founder Yiming Zhang of sabotaging a $33 billion U.S.-based TikTok acquisition deal by engaging in fraud, antitrust violations, and breach of contract. TikTok Global LLC is led by Brad Greenberg the former MySpace executive and Internet entrepreneur. The factual allegations in the complaint start in 2020 with the executive order in Trump I, and alleges that:

This set the stage for what should have been a straightforward process of acquisition and divestment, but instead, it became a twisted tale of corporate intrigue, conspiracy, and antitrust violations….Plaintiff would soon discover, the game was rigged from the start because ByteDance had other plans, plans that circumvented proper procedures, stifled competition, and maintained ByteDance’s control over TikTok’s U.S. operations – all under the guise of compliance with the executive order.

The fact-heavy complaint alleges ByteDance misled regulators, misappropriated the “TikTok Global” brand, and conspired to maintain control of TikTok in violation of U.S. government directives. The suit brings six causes of action, including tortious interference and unjust enrichment, underscoring a complex clash over corporate deception and national security compliance. Emphasis on “alleged” as the case is pretty fact-dependent and plaintiff will have to prove their case, but the well-drafted complaint makes some extensive claims that may give a window into the behind the scenes in the world of Mr. Tok. Watch this space, it could be a sleeper that eventually wakes up to bite, no pun intended.

Oracle and Walmart: This proposal, which nearly closed in 2024 (I guess), involved a sale of TikTok’s U.S. business to a consortium of U.S.-based companies, with Oracle managing data security and infrastructure. ByteDance was to retain a minority stake in the new entity. However, this deal has not closed, who knows why aside from competition and then there’s those trade tariffs and the need for approval from both U.S. and Chinese regulators who have to be just so chummy right at the moment.

AppLovin: A preliminary bid has been submitted by AppLovin, an adtech company, to acquire TikTok’s U.S. operations. It appears that AppLovin’s offer includes managing TikTok’s user base and revenue model, with a focus on ad-driven strategies, although further negotiations are still required.  According to Pitchbook, “AppLovin is a vertically integrated advertising technology company that acts as a demand-side platform for advertisers, a supply-side platform for publishers, and an exchange facilitating transactions between the two. About 80% of AppLovin’s revenue comes from the DSP, AppDiscovery, while the remainder comes from the SSP, Max, and gaming studios, which develop mobile games. AppLovin announced in February 2025 its plans to divest from the lower-margin gaming studios to focus exclusively on the ad tech platform.”  It’s a public company trading as APP and seems to be worth about $100 billion.   Call me crazy, but I’m a bit suspicious of a public company with “lovin” in its name.  A bit groovy for the complexity of this negotiation, but you watch, they’ll get the deal.

Amazon and Blackstone: Amazon and Blackstone have also expressed interest in acquiring TikTok or a stake in a TikTok spinoff in Blackstone’s case. These offers would likely involve ByteDance retaining a minority interest in TikTok’s U.S. operations, though specifics of the terms remain unclear.  Remember, Blackstone owns HFA through SESAC.  So there’s that.

Frank McCourt/Project Liberty:  The “People’s Bid” for TikTok is spearheaded by Project Liberty, founded by Frank McCourt. This initiative aims to acquire TikTok and change its platform to prioritize user privacy, data control, and digital empowerment. The consortium includes notable figures such as Tim Berners-Lee, Kevin O’Leary, and Jonathan Haidt, alongside technologists and academics like Lawrence Lessig.  This one gives me the creeps as readers can imagine; anything with Lessig in it is DOA for me.

The bid proposes migrating TikTok to a new open-source protocol to address concerns raised by Congress while preserving its creative essence. As of now, the consortium has raised approximately $20 billion to support this ambitious vision.  Again, these people act like you can just put hundreds of millions of users on hold while this changeover happens.  I don’t think so, but I’m not as smart as these city fellers.

PRC’s Reaction

The People’s Republic of China (PRC) has strongly opposed the forced sale of TikTok’s U.S. operations, so there’s that. PRC officials argue that such a divestment would be a dangerous precedent, potentially harming Chinese tech companies’ international expansion. And they’re not wrong about that, it’s kind of the idea. Furthermore, the PRC’s position seems to be that any divestment agreement that involves the transfer of TikTok’s algorithm to a foreign entity requires Chinese regulatory approval.  Which I suspect would be DOA.

They didn’t just make that up– the PRC, through the Cyberspace Administration of China (CAC), owns a “golden share” in ByteDance’s main Chinese subsidiary. This 1% stake, acquired in 2021, grants the PRC significant influence over ByteDance including the ability to influence content and business strategies.

Unsurprisingly, ByteDance must ensure that the PRC government (i.e., the Chinese Communist Party) maintains control over TikTok’s core algorithm, a key asset for the company. PRC authorities have been clear that they will not approve any sale that results in ByteDance losing full control over TikTok’s proprietary technology, complicating the negotiations with prospective buyers.  

So a pressing question is whether TikTok without the algorithm is really TikTok from the users experience.  And then there’s that pesky issue of valuation—is TikTok with an unknown algo worth as much as TikTok with the proven, albeit awful, current algo.

Algorithm Lease Proposal

In an attempt to address both U.S. security concerns and the PRC’s objections, a novel solution has been proposed: leasing TikTok’s algorithm. Under this arrangement, ByteDance would retain ownership of the algorithm, while a U.S.-based company, most likely Oracle, would manage the operational side of TikTok’s U.S. business.

ByteDance would maintain control over its technology, while allowing a U.S. entity to oversee the platform’s operation within the U.S. The U.S. company would be responsible for ensuring compliance with U.S. data privacy laws and national security regulations, while ByteDance would continue to control its proprietary algorithm and intellectual property.

Under this leasing proposal, Oracle would be in charge of managing TikTok’s data security and ensuring that sensitive user data is handled according to U.S. regulations. This arrangement would allow ByteDance to retain its technological edge while addressing American security concerns regarding data privacy.

The primary concern is safeguarding user data rather than the algorithm itself. The proposal aims to address these concerns while avoiding the need for China’s approval of a full sale.

Now remember, the reason we are in this situation at all is that Chinese law requires TikTok to turn over on demand any data it gathers on TikTok users which I discussed on MTP back in 2020. The “National Intelligence Law” even requires TikTok to allow the PRC’s State Security police to take over the operation of TikTok for intelligence gathering purposes on any aspect of the users’ lives.  And if you wonder what that really means to the CCP, I have a name for you:  Jimmy Lai. You could ask that Hong Konger, but he’s in prison. 

This leasing proposal has sparked debate because it doesn’t seem to truly remove ByteDance’s influence over TikTok (and therefore the PRC’s influence). It’s being compared to “Project Texas 2.0,” a previous plan to secure TikTok’s data and operations.  I’m not sure how the leasing proposal solves this problem. Or said another way, if the idea is to get the PRC’s hands off of Americans’ user data, what the hell are we doing?

Next Steps

As the revised deadline approaches, I’d expect a few steps, each of which has its own steps within steps:

Finalization of a Deal: This is the biggest one–easy to say, nearly impossible to accomplish.  ByteDance will likely continue negotiating with interested parties while they snarf down user data, working to secure an agreement that satisfies both U.S. regulatory requirements and Chinese legal constraints. The latest extension provides runway for both sides to close key issues that are closable, particularly concerning the algorithm lease and ByteDance’s continued role in the business.

Operational Contingency:  I suppose at some point the buyer is going to be asked if whatever their proposal is will actually function and whether the fans will actually stick around to justify whatever the valuation is.  One of the problems with rich people getting ego involved in a fight over something they think is valuable is that they project all kinds of ideas on it that show how smart they are, only to find that once they get the thing they can’t actually do what they thought they would do.  By the time they figure out that it doesn’t work, they’ve moved on to the next episode in Short Attention Span Theater and it’s called Myspace.

China’s Approval: ByteDance will need to secure approval from PRC regulatory authorities for any deal involving the algorithm lease or a full divestment. So why introduce the complexity of the algo lease when you have to go through that step anyway?  Without PRC approval, any sale or lease of TikTok’s technology is likely dead, or at best could face significant legal and diplomatic hurdles.

Legal Action: If an agreement is not reached by the new deadline of July 1, 2025, further legal action could be pursued, either by ByteDance to contest the divestment order or by the U.S. government to enforce a ban on TikTok’s operations.  I doubt that President Trump is going to keep extending the deadline if there’s no significant progress.

If I were a betting man, I’d bet on the whole thing collapsing into a shut down and litigation, but watch this space.

[This post first appeared on MusicTech.Solutions]

by theinvisiblestagehand

Understanding Trump’s TikTok Trolling: Crazy or Crazy Like a Fox?

By Chris Castle

Let’s be honest–it may look like things are getting weird with TikTok and Bytedance, but let me suggest things are maybe even weirder than they appear. New information has come to light.

First of all, I think it’s clear that at least as of January 19, the Protecting Americans from Foreign Adversary Controlled Applications Act will make it unlawful for companies in the United States to provide services to distribute, maintain, or update the social media platform TikTok, unless U. S. operation of the platform is severed from Chinese control which basically means owned by Bytedance. It’s potentially clear–although the situation is changing daily in Trump time–that the statute may also ban a number of other data-scraping apps owned and distributed by Bytedance that have problems and addictive properties similar to TikTok.

After TikTok’s faux shut down, President Trump immediately got into the act to “Save TikTok”. His first move was to post on social media that he would issue an executive order today “delaying” the effectiveness of the Act. Mr. Trump’s statements may have seemed a bit disjointed because from a statutory point of view, the President does not have the authority to “delay” the effectiveness of the Act. In fact, that is exactly what the Supreme Court just refused to do.

But “Saving TikTok” may not mean saving TikTok if you catch my drift. Saving it for whom exactly?

This may all seem rather bizarre, but if you read President Trump’s “Friend of the Court” brief filed during the Supreme Court’s review of TikTok’s request for a delay in enforcing the Act, it would all be clear–maybe–because that is exactly what he asked the Supreme Court to do–delay the effective date so the could apply Art of the Deal principles to the situation. This is, of course, not what the Supreme Court really is about, but it does reveal what was on his mind. The President says:

In light of this Court’s well-placed concerns about the “highly expedited” resolution of novel, difficult, and “very significant” constitutional questions…the Court should consider staying the statutory deadline for divestment and taking time to consider the merits in the ordinary course. Such an approach would allow this Court more breathing space to consider the merits, and it would also allow President Trump’s Administration the opportunity to pursue a negotiated resolution that, if successful, would obviate the need for this Court to decide these questions.

When a statute has been duly passed by Congress and signed into law by the then-sitting President (Biden) and upheld by the Supreme Court, the next President as chief magistrate must likely enforce the law under the “Take Care” clause of the Constitution (“take care that the laws be faithfully executed” in Article II, Section 3 for those reading along at home).

Of late there has, of course, been an unfortunate reliance on what I think is a misinterpretation of “prosecutorial discretion” that I personally find loathsome and flat out wrong. Prosecutorial discretion historically has been decisions based on resources and the strength of the evidence in particular cases; doing otherwise often results in the prosecutor getting unelected (see, e.g., Chesa Boudin and George Gascon). We’ll see if this dubious practice will continue.

Without getting into the entire history of executive orders that exceed presidential authority, there isn’t a clear precedent for a presidential executive order actually limiting the enforcement of an act of Congress that has been upheld by the Supreme Court (like the TikTok divestment). One notable and frequently cited case is Youngstown Sheet & Tube Co. v. Sawyer (1952), where the Supreme Court struck down then-President Harry Truman’s executive order to seize control of steel mills during the Korean War. The Court ruled that President Truman lacked the constitutional or statutory authority to issue such an order in a somewhat but not entirely similar situation to TikTok. In general, executive orders are subject to judicial review, and it is pretty old news that the Supreme Court has the power to strike down executive actions that exceed presidential authority or violate the Constitution. That principle of US law was established in 1803 by our first Chief Justice of the Supreme Court.

Having said that, I do understand why President Trump is trolling TikTok, or at least I think I do today. As he said in a speech to his supporters regarding a solution for TikTok’s problem (and has repeated a number of times since his inauguration):

So I said very simply, a joint venture. So, if TikTok is worth nothing, zero without an approval, you know you don’t approve, they’re out of business, they’re worth nothing.

If you do approve, they’re worth like a trillion dollars, they’re worth some crazy number. So I said, I’ll approve, but let the United States of America own 50% of TikTok. I’m approving on behalf of the United States.

So they’ll have a partner, the United States, and they’ll have a lot of bidders and the United States will do what we call a joint venture. And there’s no risk, we’re not putting up any money. All we’re doing is giving them the approval without which they don’t have anything.

As I’ve said before, President Trump has all the leverage that anyone could have in a situation where the Chinese Communist Party has their eye fixed on an IPO on the New York Stock Exchange. Not to be conspiratorial, but I do find it interesting that shortly before the Supreme Court decision, Softbank’s CEO committed to investing $100 billion in the US–Softbank being a major investor in TikTok and a beneficiary of that IPO and the same CEO just committed a portion of $500 billion to the Stargate AI infrastructure investment alongside Oracle and OpenAI.

I do think that someone might challenge any executive order that is inconsistent with the Truman precedent in the Youngstown Supreme Court case. The Supreme Court could probably strike down such an executive order. In the meantime, President Trump will likely be trying to close a deal to sell TikTok and destroy the CCP’s connection to user data. At some point, Congress may have to get involved again to bless whatever the final deal is.

So could Trump pull this off? Oh, yes, he could. It would be unusual, but not impossible in my judgement. Murky, yes. But when the dust settles, it looks like TikTok doesn’t have much of a choice. They will either hand over 50% of its company to the US (either in the form of voting power (like “golden shares“), stock or a financial interest), or they can shut down. And it may not just be TikTok–it may be all of the Bytedance companies that have a TikTok problem. Even though giving up a 50% share would essentially cut in half any ownership stake of Softbank, there may be some tolerance given that the alternative is zero–not just for TikTok, by the way, but potentially all of the Bytedance companies.

Is giving up 50% of your company because your lawyers and lobbyists failed a happy thing? Do you think Xi Jinping is in the habit of giving a hug when someone he’s paid a fortune to fails miserably? Not really. I would not want to be the food taster for TikTok’s head lobbyists.

Of course, the US should not take on any of TikTok’s obligations or litigation, such as the Multidistrict Social Media Addiction Litigation which potentially has massive liabilities for TikTok. TikTok’s benefit from social media addiction should not be lost on anyone given the user reaction that TikTok has riled up. Social media addiction is a real thing. 

Stay tuned, we’ll see what happens. Whatever happens, it won’t change the fact that TikTok pays garbage royalties if they pay at all.

by Trichordist Editor

It’s the Stock, Stupid:  Will the Centrifugal Force of the Public Market Nix the TikTok Divestment?

It’s a damn good thing we never let another MTV build a business on our backs.

In case you were wondering, the founder of TikTok’s parent corporation Bytedance is now reportedly China’s richest man according to the Hurun Rich List at a net worth of US$49.3 billion.  Is that because of “profits”?  Ah, no.  It’s due to his share of the Bytedance stock valuation. This is why any royalty deal with Big Tech that is based solely on a percentage of revenue rather than a dollar rate based on total value is severely lacking.

Revenue is a factor in determining stock valuation, of course.  ByteDance’s first-half 2024 revenue increased to $73 billion, making Bytedance’s revenues almost as big as Facebook but potentially growing faster. (Meta/Facbook’s first half  revenue increased about 25% to $75.5 billion.)

But where does TikTok’s revenue come from? ByteDance’s international revenue reached $17 billion in the first half of 2024, largely driven by TikTok. Non-China revenues for ByteDance rose by nearly 60% during this period. ByteDance continues to leverage TikTok to expand into international e-commerce, sustaining its global popularity. So the company is throwing off a pile of cash–yet they are unable to come up with a functioning royalty system.

Then what would a Bytedance IPO price at?  We kind of have to guess because Bytedance is not publicly traded and doesn’t report its financials to the public (and even if they did, China-based companies got special beneficial treatment during the Obama Administration so PRC companies haven’t reported on the same basis as everyone else until recently).  Continuing the Meta/Facebook comparison, Meta has a market capitalization of $1.4 trillion give or take, while ByteDance’s valuation on the secondary market for private stocks is about $250 billion, according to a CapLight subscriber. 

That gap is not lost on our friends at mega-venture capital firm Sequoia China and other influential investors in Bytedance such as Susquehanna,  SoftBank, and  General Atlantic.  And, of course, the Chinese Communist Party investing through its Cyberspace Administration of China censorship operation. The CCP’s CAC owns elite “golden shares” in Bytedance that allows it to name directors to the board.  These cats did not put up cold hard cash for a distress asset sale of Bytedance’s principal operating unit aka TikTok.  

Assuming a constant growth rate, Bytedance is trading at a paltry 1.7 times its 2024 revenues compared to Meta which is trading at about 8.7x its revenues.  There are some differences between Meta and Bytedance, like operating profits:  Meta has a 38% operating margin compared to Bytedance at about 25%.  But we all know why Bytedance’s valuation is depressed—the TikTok divestment which seems to be on track to happen on or about January 19.

The Protecting Americans from Foreign Adversary Controlled Applications Act aka the TikTok Divestment Act, requires that Bytedance must sell TikTok.  There’s a pretty good argument that the divestment is enforceable for a variety of reasons.  The law applies not only to TikTok, but also to any entity controlled by China, Iran, North Korea or Russia that distributes an application in the United States.  That’s a pretty significant barrier to IPO riches, or at least one major risk factor that could sour underwriters if not investors.  How to get around it?

As we saw with the Music Modernization Act that solved Spotify’s IPO issues due to the company’s massive copyright infringement business model, if you spread enough cash around Capitol Hill, it’s astonishing what can happen with the vast number of people on the take.  Whatever it costs, lobbyists and lawmakers are cheap dates compared to IPO riches.  Even so, it doesn’t look like the US government is quite ready to allow one of the biggest foreign agent data harvesting and user profiling operations in history to get its snout in the public markets trough.  At least not yet.

But an argument could be made that Bytedance is missing about $1 trillion in market cap.  Greed and resentment are a powerful combination.  To add insult to injury, even Triller managed to get to the public markets, so things could start to get weird while Mr. Tok watches his paper billions evaporate on January 19.

[This post first appeared on MusicTech.Solutions]

by Trichordist Editor