ByteDance rejects Microsoft bid for TikTok

There are rumours that Oracle has been chosen by ByteDance

TikTok owner ByteDance has rejected the bid from Microsoft for its U.S. operations. A deadline for TikTok to sell its U.S. operations or shut them down is arriving on Tuesday.

Microsoft said in a short statement:

“ByteDance let us know today they would not be selling TikTok’s US operations to Microsoft,”

“We are confident our proposal would have been good for TikTok’s users, while protecting national security interests. To do this, we would have made significant changes to ensure the service met the highest standards for security, privacy, online safety, and combating disinformation, and we made these principles clear in our August statement. We look forward to seeing how the service evolves in these important areas.”

ByteDance has been in talks to sell TikTok’s US business since Donald Trump threatened last month to ban the service if it was not sold. The president’s executive order in August gave until 15 September or it would be shut down in the US. It effectively set a deadline for a potential pressured sale of part of the tech company to an American bidder.

There are rumours that Oracle has been chosen by ByteDance as a ‘“technology partner” to allay US concerns, with a source saying it would be a restructuring rather than a sale, with Oracle handling TikTok’s US user data. The source did not disclose how much of TikTok’s US operations ByteDance and its investors would continue to own.

ByteDance will need approval for the deal from both Washington and Beijing. It is not clear whether Trump, who wants a US technology company to own most of TikTok in the United States, will approve the proposal.

Walmart, which had been participating in negotiations with Microsoft, still has an interest in a TikTok investment, and was still in discussions with ByteDance leadership and other parties.

“We know that any approved deal must satisfy all regulatory and national security concerns,” Walmart said.

According to reports from China, ByteDance will not sell or transfer the algorithm behind the popular video-sharing app in any sale or divestment deal, according to a source briefed on the Chinese company’s boardroom discussions. The source said:

“The car can be sold, but not the engine. The company [ByteDance] will not hand out source code to any US buyer, but the technology team of TikTok in the US can develop a new algorithm,”

The Chinese government updated its technology export control list two weeks ago, requiring official permission for technologies such as TikTok’s algorithm to be sent offshore. ByteDance said it would strictly comply with the Chinese regulation.

There is some support in Beijing for excluding the algorithm from the TikTok sale. A government source, who is involved in regulating ByteDance but not directly involved in technology export controls, said earlier this month that “ByteDance can sell all of TikTok but the algorithms”.

The exclusion of the algorithm would also force potential buyers to reconsider purchase plans and valuations.

A source familiar with the technology said ByteDance used the same source code for TikTok in all countries, with modifications for different markets.

“In theory, the US team can copy the algorithm, but it takes time for users to get used to the copied algorithm,”

“With competition among similar apps heating up, it would be hard to catch up if you needed extra time [to make the algorithm work well].”

With its new export control rules, China is showing that it can influence the outcome of this deal in this case – and others like it.

Any Chinese seller of sensitive technologies such as the push of personalised information based on data analysis has to apply to a provincial level commerce authority, which would have up to 30 working days to approve the deal. If the outline of the deal were approved, the firm could start “substantive negotiations” with potential importers of the restricted technologies.

The firm would then have to submit any contract for review to the commerce authority, which would have 15 working days to make a decision. If approved, a technology export licence certificate would be issued.

The approval process could be shorter because local governments have been working to streamline procedures. It would take 19 working days to obtain an export licence certificate in Beijing after the required documents are filed, according to the municipal commerce bureau.

ByteDance and TikTok did not immediately respond to requests for comment.

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