Update (1300ET): President Trump just told a group of reporters at the White House that he supports Microsoft or some other American company buying TikTok from China's ByteDance.
But a deal must be struck CFIUS's deadline of Sept. 15, or the administration would move ahead with a ban and put the platform "out of business" in the US.
Once a deal is solidified, Trump said ByteDance should make tribute to Washington via some kind of "payment" to the Treasury as part of the sale of TikTok, which has been valued at $50 billion.
All this comes after Trump had a "great" talk with Microsoft CEO Satya Nadella.
The headlines are rolling in:
- TRUMP SAYS HE HAD GREAT TALK WITH MICROSOFT CEO
- TRUMP DOESN'T MIND MICROSOFT, ANOTHER BIG CO. BUYING TIKTOK
- TRUMP: TIKTOK OUT OF BUSINESS IN U.S. IF NOT SOLD BY SEPT. 15
- TRUMP WANTS PAYMENT TO U.S. AS PART OF TIKTOK SALE
Microsoft shares have been bolstered by news about a potential deal, but rivals like Snap tumbled Monday, with the company's shares down 8% on Monday, despite announcing plans to introduce a new feature to add music to users' snaps that the company has reportedly cribbed from TikTok.
* * *
Update (0950ET): Exhibiting a dynamic familiar to those who closely followed the marathon negotiations over the US-China 'Phase 1' trade deal, White House advisor and notorious loose cannon Peter Navarro, one of the team Trump's most vocal China hawks, has taken to CNN to slam Microsoft's plans to buy TikTok, questioning whether any company that operates in China could be relied upon to protect the American people from CCP "surveillance".
Navarro has always played the "bad cop" role in the Trump Administration's dealings with China. And his comments on Monday about TikTok appear to fit this mold, as President Trump once again plays middle-of-the-road, voicing concerns, but seeming to support a potential deal.
Since Google's departure from China, Microsoft's Bing search engine has remained one of the most popular search engines in mainland China. The company also sells software, video games and myriad other products and services in China. It also owns several Chinese subsidiaries, which are a bigger concern to Navarro.
Then Navarro took his rhetoric a few steps further, suggesting that Microsoft should be made to divest its Chinese holdings if it wants to buy TikTok.
Liberal "journalists" whined about CNN's decision to continue booking Navarro (love him or hate him, Navarro has been one of the longest serving members of Trump's inner circle).
CNN reporters complain that Peter Navarro repeatedly lies on their network. CNN producers keep booking him. pic.twitter.com/1RWLMzdK5H— Timothy Burke (@bubbaprog) August 3, 2020
Keep in mind, five days ago, a CNN reporter "cut Navarro off" in what members of the #resistance hailed as a brave gesture of contempt, as well as an implicit promise that producers would no longer book Navarro. Unfortunately, if CNN wants that kind of insider White House access, they're going to need to accept that Navarro is their man, love him or hate him.
The editor in chief of the Daily Beast offered a salacious, and probably deliberate, distortion of Navarro's remarks.
Peter Navarro is now saying that Microsoft is an arm of the Chinese government.— Molly Jong-Fast🏡 (@MollyJongFast) August 3, 2020
To be sure, Navarro's ramblings during the Monday interview about the effectiveness of hydroxychloroquine were a little off topic and probably intended to bait and further enrage his political opponents. Can't say we blame him for succumbing to the temptation.
Microsoft shares were up 5%+ before Navarro's comments as fuels of the deal spurred a massive rally in $MSFT shares.
As a reminder, last night, Microsoft said in a statement about the talks that it would find a way to ensure digital protections for user privacy and addressing the national security issues raised by the US government.
Microsoft sought to assure critics in its Sunday statement.“This new structure would build on the experience TikTok users currently love, while adding world-class security, privacy, and digital safety protections,” it said. “The operating model for the service would be built to ensure transparency to users as well as appropriate security oversight by governments in these countries."
“Among other measures, Microsoft would ensure that all private data of TikTok’s American users is transferred to and remains in the United States,” it continued. “To the extent that any such data is currently stored or backed-up outside the United States, Microsoft would ensure that this data is deleted from servers outside the country after it is transferred.”
* * *
Just weeks after abandoning a planned move to London - a cancellation that was reportedly politically motivated, according to myriad reports in the British press (more on that here) - ByteDance will reportedly shift its headquarters to London from Beijing.
The decision, which was motivated by the Trump Administration's threats to bar TikTok from the American market on national security grounds, follows a quiet agreement between British government ministers and ByteDance. Last night, we reported the confirmation that Microsoft had restarted talks with ByteDance regarding a possible acquisition of TikTok.
The company confirmed the reports Monday, and it appears ByteDance has finally shown itself willing to play ball with the US, despite the brief period of uncertainty over the weekend after ByteDance and Microsoft reportedly broke off talks pending more guidance from the administration.
Whoever buys TikTok will control the app and its global operations, but ByteDance will retain ownership of a separate app called Douyin ("TikTok") which is Chinese-language and built for the Chinese internet.
Microsoft says it's aiming to wrap up talks by Sept. 15, giving us a 6-week timeline during which we expect the White House to tone down its rhetoric a little bit, even if the administration does move ahead with imposing new restrictions on apps like WeChat, and companies like Huawei.
As investors tried to piece together exactly what was happening behind the scenes, Reuters came through last night with exactly that: a deeply-sourced report citing White House officials who explained that President Trump's comments on Friday - that the US would move to ban TikTok - elicited serous pushback from his advisors and Republican lawmakers like Lindsey Graham. Trump initially opposed the idea of allowing ByteDance to sell TikTok to Microsoft. But he quickly relented, and by Sunday night, GOP lawmakers had provided enough assurances to BD and Microsoft CEO Satya Nadella that a deal to buy TikTok would receive the administration's blessing when the time comes for the CFIUS review.
For decades, American law has required a government board to weigh in - and ultimately approve - every foreign deal involving major American assets and ensure that the deal doesn't impact American national security priorities. China's wave of ambitious buyouts around the world over the past 10 years - remember, China owns Smithfield foods, one of the biggest pork producers in the world, and a company that's technically an American company - has made western governments wary of Beijing's "neo-imperialist" approach.
Once Trump assented to the deal, CFIUS reportedly gave the two companies 45 days to work out a deal (hence the Sept. 15 deadline shared by Microsoft).
Lindsey Graham tweeted over the weekend that a Microsoft buyout of TikTok would be a "win-win" for America and China.
What’s the right answer?— Lindsey Graham (@LindseyGrahamSC) August 1, 2020
Have an American company like Microsoft take over TikTok.
Keeps competition alive and data out of the hands of the Chinese Communist Party.
TikTok has roughly 100 million users in the US, and has been valued at $50 billion, reportedly. Though it's unclear what prices MSFT is looking at.
For some reason, we suspect Beijing doesn't see things Graham's way. And as Reuters pointed out, whether Microsoft can successfully separate TikTok's technology from ByteDance in a way that would successfully assuage security concerns remains to be seen. It's probably one of the biggest risk factors standing in the way of any eventual deal.
A key issue in the negotiations will be separating TikTok’s technology from ByteDance’s infrastructure and access, to alleviate U.S. concerns about the integrity of personal data. ByteDance owns a Chinese short video app called Douyin that was based on the same code used for TikTok.
Not to say that it can't be overcome. But it certainly explains the intense government scrutiny at every stage in the process, as CFIUS told Reuters it intends to monitor the negotiations.
The negotiations between ByteDance and Microsoft will be overseen by CFIUS, a U.S. government panel that has the right to block any agreement, according to the sources, who requested anonymity ahead of a White House announcement. Microsoft cautioned in its statement that there is no certainty a deal will be reached.
One idea under consideration is to give Microsoft and ByteDance a transition period to develop technology for TikTok that will be completely separate from ByteDance, one of the sources said.
Microsoft said it did not intend to provide further updates until there was a definitive outcome in the negotiations.
The scrutiny facing TikTok isn't unprecedented: Scrutiny from CFIUS and the White House recently forced a Chinese company to divest its ownership stake in the American LGBTQ-focused hookup app "Grindr". CFIUS also warded off Broadcom when it tried to buy out American chip giant Qualcomm, establishing that 5G technology is now off-limits for foreign acquisitions.
But we can't help but suspect that Trump's Friday remarks about barring the app from the US have left a bad taste in Beijing's mouth. We fear the deal talks might be fraught with ongoing conflict as both companies struggle to balance their own priorities with the demands of their respective governments.
As much as we appreciate a good compromise...