Microsoft Reportedly Expands Scope Of TikTok Deal Talks To Cover Entire Ex-China Business

Updates about the ongoing deal talks between Microsoft and ByteDance are arriving almost as rapidly as updates about the ongoing negotiations between the White House and Congressional Democrats over an extension of financial relief for American citizens and businesses.

And the latest report comes from the FT, which says that Microsoft and ByteDance are now looking at the possibility of buying all of TikTok's global operations, including in India and Europe, not just the US-facing business, along with the business in Canada, Australia and New Zealand. Microsoft said Sunday night that it was looking into buying TikTok's US operations, along with those based in "Canada, Australia, and New Zealand."

Microsoft is chasing a deal to buy all of TikTok’s global business, including the viral video app’s operations in India and Europe, according to five people with knowledge of the talks. The US software company said on Sunday it was in negotiations with ByteDance, the Chinese owner of TikTok, to explore “a purchase of the TikTok service in the United States, Canada, Australia, and New Zealand”. But Microsoft has since also pursued a plan that would include all countries where TikTok operates. TikTok does not operate in China, and such a deal would not extend to its China-facing sister app Douyin.

However, according to the FT, Microsoft's expanding ambitions are bumping up against a new obstacle - and we're not talking about President Trump's oblique demands for "key money" paid to the US Treasury: We're talking about Beijing.

Last week, the People's Daily published an editorial proclaiming that the CCP would never allow the US to "steal" TikTok in a "Smash and Grab"

Meanwhile, Microsoft executives have sought to assuage the Chinese government as it seeks to avoid being caught in cross fire between Beijing and Washington, two of the people said. One person close to Microsoft pushed back on the suggestion that the US tech group was discussing asset swaps in China as part of a deal. 

On one hand, the notion that Microsoft is looking at buying the entire business makes sense considering reporting from CNBC's David Faber on the difficulty of untangling TikTok from the rest of ByteDance. President Trump said yesterday that, when it comes to TikTok, it would probably be easier to "buy the whole thing" than just buying 30% of it.

One person close to ByteDance’s Asia-Pacific operations suggested that Microsoft had been attracted to the idea of buying all of TikTok’s global business by the difficulty of separating back-office functions such as HR and to ensure that TikTok users in one country could still use the app if they travelled to another.

Any eventual deal may take a variety of forms, the people who spoke to the Financial Times said. They highlighted a long list of obstacles that stand in the way of a transaction, including price.  One person involved said the discussions were like “multi-dimensional chess” given the number of stakeholders in the process, including governments and minority shareholders in ByteDance. Even adding the entire business to any deal does not resolve the enormous challenge of untangling TikTok’s technology from ByteDance. ByteDance had previously been working on separating the data and algorithms between China and the rest of the world before the talks began, employees said. Microsoft has discussed adding an agreement whereby it would have one year to separate TikTok from its Chinese parent and address US government concerns over the security of the data generated by the app.  Two people following the talks closely said that the timeframe would be difficult to meet, with one of them going so far as to say it could take between five and eight years to fully separate the software.

Perhaps the biggest incentive for Microsoft to buy the entire business is the potential for a turnaround in India, formerly TikTok's biggest market, until the app was banned there in June (a fact that the US media has rarely brought up in its coverage of President Trump's threats).

India is TikTok’s biggest market, with more than 650m downloads according to Sensor Tower data. But it has been banned in India since the end of June, when the government put it on a blacklist of 59 Chinese mobile apps that it accused of threatening national security.  A purchase by Microsoft may help restore its fortunes by removing the stigma of Chinese ownership at a time when anti-China sentiment has been inflamed by a deadly clash between Indian and Chinese soldiers in the Himalayas earlier this year. One person close to ByteDance in India said there was a “deal in the works” with Microsoft for TikTok India but that if it fell through, ByteDance could sell TikTok India either to foreign investors or Indian buyers. ByteDance would then license its technology to the company and share revenue.

However, for investors trying to assess the likelihood that this deal will go through, this might be the key line from the FT's story.

The shift from Sunday underscores how preliminary the talks between the two sides remain as they race to meet a mid-September deadline to reach a deal and prevent TikTok from being banned in the US. 

Hours after the FT post was published, Microsoft issued an official denial, saying it isn't looking into "expanding the scope" of the TikTok deal.

If talks truly are still "very preliminary"...which means either the media is overplaying the odds of a deal, or Microsoft (or possibly BytdeDance) is over playing it via these 'strategic' leaks to the press. Given the potential for serious market blowback should this deal fall apart, none of these scenarios would surprise us.

And if the obstacles to a deal are as big as they look (satisfying the interests of one major world power is difficult enough...but two?) it looks like the teens' favorite new digital "safe space" might be seriously "stuck in the middle" of a geopolitical battle, making it all the more likely that American tech companies will be forced to "deplatform" TikTok, effectively "killing" the app (at least in the US)