High po­lit­i­cal and fi­nan­cial stakes face any­one will­ing to ac­quire TikTok as the race is now on

Big play­ers in the frame to take over the video loop app have se­ri­ous risks to as­sess, not least the price

The Daily Telegraph - Business - - Technology Intelligen­ce - By Matthew Field, Hasan Chowdhury and James Tit­comb

‘Be­ing big in the so­cial me­dia busi­ness is no sim­ple game’

‘Th­ese firms like to be low-pro­file whereas this deal is ex­tremely high pro­file’

Be­fore TikTok, there was Vine. The Amer­i­can­founded, short-form video app was used at the height of its pop­u­lar­ity by more than 200 mil­lion peo­ple, let­ting them cre­ate seven-sec­ond loop­ing videos fea­tur­ing mu­sic and com­edy. A bit like TikTok.

In Jan­uary 2017, how­ever, the app met an un­timely end af­ter be­ing shut down for good by Twit­ter, which had bought the firm for a re­ported $30m (£23m) in Oc­to­ber 2012. Three years on from its failed Vine ven­ture, Twit­ter has found it­self in the run­ning to buy TikTok.

Owned by Chi­nese tech­nol­ogy gi­ant ByteDance, TikTok has ex­ploded in pop­u­lar­ity with 800 mil­lion users glob­ally, the vast ma­jor­ity teens flock­ing to the app for short clips of dance rou­tines and lip-synced com­edy.

Twit­ter’s po­ten­tial bid comes as

TikTok’s fu­ture rests on a knife edge. Last week, Don­ald Trump an­nounced a US ban on TikTok would kick in on Sept 15 un­less Mi­crosoft or “some­body else” bought it. TikTok is ex­pected to en­ter a le­gal chal­lenge against the US ex­ec­u­tive or­der in a court to­day. A deal could value TikTok at around $30bn, a source told The Daily Tele­graph. Other es­ti­mates have put it at any­where be­tween $10bn and $30bn, depend­ing on how much of its in­ter­na­tional busi­ness ends up in the sale. So who are run­ners and riders in the race to snap it up?

Mi­crosoft

At the head of the pack is Mi­crosoft, which cer­tainly has the fire­power to buy TikTok with more than $130bn in cash. But Bill Gates, Mi­crosoft’s bil­lion­aire founder, warned in an in­ter­view that such a deal would be a “poi­soned chal­ice”. He added that “be­ing big in the so­cial me­dia busi­ness is no sim­ple game”.

Over the years, Mi­crosoft has moved away from con­sumer tech­nol­ogy. Its old mes­sag­ing apps, such as Win­dows Live Mes­sen­ger, have been shut down. While it still has a sub­stan­tial gam­ing busi­ness with Xbox and Minecraft, many in­vestors see Mi­crosoft’s bread and but­ter as en­ter­prise com­put­ing, cloud and its Of­fice prod­ucts. Its deal to buy Skype, the on­line video chat ser­vice, for $8.5bn in 2011 was seen as a dis­as­ter. How­ever, buy­ing TikTok would be in line with Mi­crosoft’s stance to­wards China where it has a size­able pres­ence, un­like some other tech heavy­weights.

From a tech­ni­cal stand­point, com­plet­ing the deal could be com­plex. Mi­crosoft and TikTok are hop­ing to agree a deal by Sept 15, but it is un­clear whether this will only be for TikTok’s US, Cana­dian, Aus­tralian and New Zealand arms, or its full Western busi­ness.

Sep­a­rat­ing out the code of TikTok from Douyin, the Chi­nese app it was based on, could be an­other chal­lenge that may ex­tend the time­line.

Twit­ter

For Twit­ter, the hefty val­u­a­tion on TikTok would make any such deal a stretch. It only has a mar­ket cap­i­tal­i­sa­tion of $30bn com­pared with Mi­crosoft’s $1.6 tril­lion, so it would likely need other in­vestors’ sup­port.

But while Mi­crosoft is still seen as the fron­trun­ner, Twit­ter’s re­ported in­ter­ven­tion could be a bet­ter fit.

“Twit­ter makes a lot more sense to me. They have a proac­tive mu­sic and video strat­egy,” said one tech­nol­ogy sec­tor ad­viser.

Twit­ter’s smaller stature could work to its favour. It is likely to come un­der much less scru­tiny than coun­ter­parts like Mi­crosoft, which could face the ire of reg­u­la­tors on the com­pe­ti­tion front.

Twit­ter has some deep pock­eted in­vestors, too. Sil­ver Lake, the pri­vate eq­uity fund, in­vested $1bn in it ear­lier this year. Ac­tivist share­holder Elliott Man­age­ment also has a stake. There are also sev­eral fi­nan­cial firms and in­vestors wait­ing in the wings that could get in­volved in plans to sep­a­rate TikTok’s US en­tity, if the res­cue deal meant it could con­tinue its oper­a­tions.

Se­quoia and Gen­eral At­lantic

Two of the big­gest in­vestors in ByteDance, the Chi­nese par­ent of TikTok, Se­quoia and Gen­eral At­lantic, have re­port­edly ex­pressed an in­ter­est in buy­ing it.

Se­quoia, which first in­vested in ByteDance in 2014, holds a 10pc stake in the com­pany. It re­cently raised a record $8bn flag­ship fund to in­vest in tech­nol­ogy start-ups. Gen­eral At­lantic, mean­while, raised a $3.3bn fund. The two funds would be able to at least par­tially fund the deal for TikTok’s US busi­ness. “Se­quoia’s pedi­gree is sec­ond to none; they could show they were early in­vestors in com­pa­nies like Ap­ple, PayPal and Google,” said Mirabaud’s Neil Cam­pling. “The only prob­lem is th­ese firms tend to quite like to be low-pro­file whereas this deal is ex­tremely high pro­file.”

Ap­ple was also pitched the deal, ac­cord­ing to one re­port, but has de­nied it has any in­ter­est. The Wall Street

Jour­nal re­ported SoftBank had con­sid­ered “throw­ing its hat into the ring”. SoftBank de­clined to com­ment.

For any of the firms in­volved, a big gam­ble is just how big will TikTok be­come. Could this scru­tiny de­rail its in­ter­na­tional growth en­tirely, and just how much are they pre­pared to pay?

“There could ac­tu­ally be sev­eral [TikTok ri­vals],” said a source fa­mil­iar with ByteDance. “A TikTok-equiv­a­lent is be­ing cre­ated by In­sta­gram. Pos­si­bly an­other by Snapchat. It is hard to give a value to TikTok, one in the US, and TikTok two out­side of it.”

With so much com­plex­ity and risks, only a firm with as much cash as Mi­crosoft may be able to take on the deal. Its talks with TikTok are, so far, the only ones that ap­par­ently have the say-so of the US pres­i­dent. With a dead­line of Sep 20 to get a deal done, any gate­crash­ers had bet­ter act now.

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