Administration Nears Deal for New TikTok Ownership Structure

Action: The President signed an Executive Order stating that the US government has been presented a framework agreement under which TikTok’s US application would be “operated” and substantially controlled by a US entity, which in the Administration’s view would satisfy the requirements of an April 2024 law, the Protecting Americans from Foreign Adversary Controlled Applications Act (the “Act”) requiring that designated “foreign adversary-controlled applications” be divested from foreign adversary ownership or cease operations in the US. The Order directs the Attorney General to continue the ongoing pause of enforcement of the Act for 120 days.

Trusted Insights for What's Ahead^®

• The Act, specifically designed to address US concerns about Chinese control of TikTok, required divesture by January 19, 2025, but after briefly going offline, an Inauguration Day Executive Order delayed enforcement for 75 days, a delay that was further extended by Executive Orders in April, June, and September.  
• The latest Order did not provide key details about the framework agreement, but press reports indicate that a variety of investors, including private-equity firms Silver Lake and Susquehanna International Group, Oracle, Michael Dell, Rupert and Lachlan Murdoch, and a state-owned Emirati investment firm connected to the UAE sovereign wealth fund, would join existing US investors such as Susquehanna International in owning 80% of the new entity. A figure either at or just under the remaining 20% would continue to be held by TikTok’s parent company, ByteDance.
• The Vice President stated the new entity would be valued at $14 billion, short of previous estimates that placed the value of the US TikTok operations as high as $50 billion.
• ByteDance will reportedly license its algorithm to the new entity, and Oracle will reportedly make a copy of the algorithm for US use and host and secure US user data. Some critics noted that continued Chinese design and control of the algorithm may not comply with at least the spirit of the law, which prohibits “any cooperation with respect to the operation of a content recommendation algorithm”; it is unclear whether the US copy of the algorithm would be static or would be updated and if so, by whom and whether US users would be required to download a new TikTok application following the deal.
• The US government is not expected to hold a stake in the new entity, though it will reportedly collect a multi-billion dollar fee for facilitating the deal.
• Any deal would require formal approval from China. The President stated that Chinese President Xi Jinping has given “the go-ahead.” The Chinese Foreign Ministry, while not giving formal regulatory approval, stated that the Chinese government “respects the wishes of the company and is pleased to see the company conduct commercial negotiations and reach a solution that complies with Chinese laws and regulations and balances interests, all while adhering to market rules.”