TikTok defends sale of US arm as investors move behind Microsoft

The founder of TikTok has defended a plan to sell the US arm of the viral video app, as his investors threw their support behind a bid for the business by Microsoft.

In a second letter to employees in as many days, Zhang Yiming, the chief executive of ByteDance, the owner of TikTok, said he had “no choice” but to submit to demands from US regulators and the White House to sell the app.

“As a company, we have to abide by local [US] laws, and have no choice,” Mr Zhang wrote. But the forced sale, he added, “was not their purpose — it’s even something they [the US government] didn’t want to see — the real purpose was to completely ban and even more”.

A sale to Microsoft is now seen both by ByteDance and by its investors, which include General Atlantic, KKR, SoftBank and Sequoia China, as the only solution to avoid action by the Committee on Foreign Investment in the US (Cfius) and a complete ban of the app in the US.

“This is the only real solution for the Cfius problem,” said one person involved in the talks. “If TikTok is sold to Microsoft, Microsoft will take over the code and certify that the data is secure.”

Two people involved in the talks said the discussions were now rapidly progressing to the terms of the deal.

While Microsoft has said it is open to inviting existing investors to hold a minority stake in TikTok US, most investors are minded not to hold shares in TikTok US but to continue to hold their stakes in ByteDance itself, the people said.

The situation is still fluid, however, and other investors are considering whether they might participate. “At this stage, there is no other choice but Microsoft,” one of these investors said. “But it is too early to say whether this will be a pure deal only between the two sides of ByteDance and Microsoft.”

President Donald Trump on Monday blessed a deal for TikTok by Microsoft after some of his supporters on Wall Street urged him to avoid “expropriating” assets from western investors in ByteDance in the name of national security as it would set a negative precedent, two people briefed on the situation said.

Wall Street financiers also have been communicating regularly with the US Treasury to express their support for the government’s action, but to caution that the sale should be carried out in a way that does not create a blueprint for future asset seizures.

Meanwhile those involved in the deal were digesting a demand by the president on Monday that whoever buys TikTok should pay a “substantial” share of the sale price to the US Treasury.

The US should get a very large percentage of that price, because we’re making it possible,” said Mr Trump.

Karin Thorburn, a finance professor at the Wharton school of business at the University of Pennsylvania, said such a levy would be very hard to impose given the lack of a legal framework.

“To be legal there has to be some structure and some law,” said Ms Thorburn. “This is just something that Trump came up with. I actually don’t think you get away with it.”

She also raised the question of who would pay the fee to the US Treasury, as Mr Trump suggested. “Is it TikTok or is it Microsoft? And on what basis? Because we don’t have a penalty on making acquisitions,” said Ms Thorburn.

The Trump administration could also try to impose a penalty on TikTok as a means to extract some money from the transaction, said Ms Thorburn, “but not random penalties without legal grounds”.

As part of the negotiations, Microsoft is seeking reassurance from Beijing that there will be no retaliatory measures taken against it in China if the sale goes ahead. One ByteDance investor suggested that Microsoft might consider selling some of its China businesses to ByteDance to placate Chinese nationalists.

On Tuesday, Chinese state media said the US had launched a “smash and grab” raid on TikTok while Wang Wenbin, a spokesman for China’s Ministry of Foreign Affairs, urged the US not to discriminate against foreign businesses.

“If everyone were to follow the US’s practice then anyone can invoke national security to take similar measures against a US company. The US should not open this Pandora’s box otherwise it will swallow the bitter fruit.”

Additional reporting by Xinning Liu and Nian Liu

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