A Deal To Sell TikTok Probably Isn't Happening Tuesday - Or Any Time Soon

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by Tyler Durden
Tuesday, Sep 01, 2020 - 06:50 PM

CNBC assured us yesterday that despite Beijing's latest attempt to stall any sale of TikTok, that Chinese conglomerate ByteDance could announce a deal with a chosen US partner by the end of Tuesday.

Well, here we are: The business day has ended in North America, and Asia is just waking up on Wednesday morning, and while reporters have doubled down on their assurances that a deal just might be in the offing, this latest report from the Wall Street Journal highlighting new obstacles to a TikTok sale is a pretty obvious sign that we're not going to get a deal tonight.

But then again, we suspected as much earlier, when President Trump insisted that Sept. 15 would, in fact, be a hard deadline for TikTok to be sold (even though his last EO technically extended that deadline). Whatever the 'deadline' may be, Beijing has already clearly signaled that it won't allow a "smash & grab" deal. For whatever reason, the CCP is pumping the breaks. The other day, we surmised that President Xi might be savoring the chance to stick it to Trump by embarrassing him politically. But in truth, this is probably an ancillary benefit.

According to WSJ, which cited an anonymous source close to Beijing's thinking, the goal of China's latest attempt to obstruct the deal is simply to delay a deal, not to scuttle it completely.

A delay, this source reasons, would create an opportunity for the Chinese government to have a say as well as to subject it to a level of Chinese government scrutiny similar to that imposed by CFIUS, as Beijing works to bolster the narrative that the US's claims about national security threats stemming from China are brazen hypocrisies, and that Washington is the real threat to Beijing's security.

That Beijing is committing to this approach makes sense, considering what Peter Navarro said after warning his interviewer during an appearance on Fox Business that the US would soon expand its list of Chinese companies to target. After that, Navarro hinted that TikTok had stolen some of the AI technology it used to build its precious 'core algorithm' from Alphabet and Microsoft.

CFIUS has killed several deals involving Chinese companies, including the sale of Grindr, the queer-focused hookup app, to a Chinese company, for fear that it could make members of the US military vulnerable to blackmail.

Chinese Foreign Ministry spokesman Zhao Lijian responded to a question about a TikTok sale by accusing the US of "economic-bullying and political-manipulation tactics against non-U.S. companies."

WSJ's report noted that Beijing's decision to force regulatory approval of any sale of TikTok by ByteDance would complicate the talks because the only option ByteDance would have to get around these restrictions would be to sell TikTok to Microsoft-Wal-Mart (or whoever) while retaining the algorithm - something that analysts say would pretty much invalidate the entire point of the deal, since the algorithm is so critical to TikTok's success.

Others argued that ByteDance could circumvent Beijing's restrictions by just selling the shell of the business, allowing the buyer to simply build their own algorithm, like Facebook did when it launched Instagram Reels.