Could an American takeover of TikTok save it from being locked out of the United States?
US investors are reportedly considering buying the video sharing app from Chinese parent company ByteDance in an effort to save TikTok’s sizeable foothold in America.
A group of investors, including venture capital firms Sequoia and General Atlantic, are mulling buying a majority stake, according to The Information and the Financial Times. The investors are talking with the US Treasury Department and other regulators about whether a spinoff of TikTok would quell US concerns about the company, according to the FT, which cited anonymous sources.
The reports come as TikTok faces heightened scrutiny in Washington. Tensions between the United States and China have been climbing as the two powers battle over trade, technology, national security and human rights. ByteDance offers a very similar app called Douyin, with the same logo and branding as TikTok, in China. According to the FT, it would retain a minority stake in TikTok under the deal being discussed.
TikTok declined to comment on Thursday on a possible sale to US investors, and referred to an announcement earlier this month that ByteDance is weighing changes to its corporate structure. The Wall Street Journal reported at the time that such changes could include establishing a headquarters for the video app outside of China, or a new management board.
“We are very confident in the long-term success of TikTok and will make our plans public when we have something to announce,” a TikTok spokesperson said in a statement on Thursday.
General Atlantic and Sequoia declined to comment.
TikTok has been trying to distance itself from its Beijing-based owner for months.
TikTok hired Disney (DIS) veteran Kevin Mayer as CEO in May. Its main office is in Los Angeles County, and it has offices in London, Paris, Berlin, Dubai, Mumbai, Singapore, Jakarta, Seoul and Tokyo.
But for ByteDance to sell TikTok — the only major social media app created by a Chinese company to gain significant traction globally — would be a big move. And it still might not be enough to alleviate concerns in Washington, where lawmakers and US officials allege TikTok poses a national security threat because it could be used as a spying tool by Beijing. TikTok has denied those allegations.
US officials also worry the platform can be used to collect personal data on US citizens or censor speech deemed sensitive by the Chinese government.
TikTok says its data centers are located entirely outside of China, and that none of that data is subject to Chinese law. US user data is stored in the United States, with a backup in Singapore, according to TikTok. In its first transparency report released earlier this month, TikTok noted that it received no requests to remove content from China.
Meanwhile, the Committee on Foreign Investment in the United States (CFIUS) is currently investigating Bytedance’s 2016 acquisition of US-based app Musical.ly — a deal that helped add millions of users to TikTok. Such an investigation could be a blow to TikTok, because CFIUS has the authority to retroactively review foreign acquisitions of US businesses and reverse those transactions.
“It does not seem likely that US investors alone buying a majority ownership stake would satisfy CFIUS or broader US government concerns about the Chinese ownership piece and the potential for US personal data to find its way back to Beijing,” said Paul Triolo, head of global tech policy at Eurasia Group.
And the US campaign against the app appears to be gathering momentum.
Secretary of State Mike Pompeo and other US officials say they are considering banning TikTok. The US House of Representatives voted to bar federal employees from downloading TikTok on government-issued devices. And President Donald Trump’s re-election campaign is currently running Facebook (FB) advertisements bashing the app.
The ads declare that “TikTok is spying on you” and link to a survey and a sign-up for a Trump campaign mailing list asking if TikTok should be banned in the United States.
Wells Fargo has instructed its employees to remove the app from company devices. And TikTok is also under pressure in other countries.
The company pulled out of Hong Kong earlier this month, after China imposed a controversial national security law on the city. Last month, India banned TikTok along with several other popular Chinese apps, amid rising tensions with China. The app is also facing more scrutiny in Australia, according to CNN affiliate 9 News Australia.