TikTok for Sale

Updated: Aug 19, 2020


The Story:

TikTok has been identified by the U.S. government as a company which can disclose information, including that of its international users, to the Chinese government. This includes U.S. nationals, and for this, the U.S. has decided to ban TikTok from operating within its market.

In the beginning, the Trump administration demanded TikTok to be completely banned from the U.S. market. This may appear to have been a starting negotiating position, as Trump then adapted his stance. U.S. President now has given his blessing for a large American company to purchase TikTok's U.S. operations. Although this move came with conditions. Trump has stated that the deal needs to be finalised by September 15 and that the American government should receive a portion of the selling price.

Commercial Implications:

The situation in which TikTok has found itself creates a perfect opportunity for a wealthy U.S. company such as Microsoft to buy TikTok. The Bill Gates-founded company has been in contact with ByteDance, TikTok’s parent company, regarding a possible acquisition. The bargaining power Microsoft holds is incredibly unbalanced in favour of the Windows provider. This is because TikTok has to decide whether to completely shut down its operations (hence losing all possible revenue and profits from operating/selling), or sell to Microsoft. This creates somewhat of a 'take it or leave it' situation.

The sale is further put under pressure by the deadline imposed by Trump, by which TikTok will either give in to Microsoft's bid or lose all U.S. operations. This creates an unpredictable market for foreign companies to operate in, as it shows that the Trump administration is not afraid to use its political powers to intervene in the private sphere.

Theoretically, Microsoft can make a low bid and wait for TikTok to finally give in before it is too late. Although, this can be compromised by other U.S. companies which may recognise TikTok's opportunity and take part in the bidding process, hence creating competition. Twitter seems to be one of these companies, as it is speculated that the two social media companies are in talks of a potential deal. TikTok has been evaluated in the tens of billions of dollars, a figure for which Twitter would need financial assistance if it wants to acquire.

Legal Implications:

If Twitter were to acquire TikTok, legal issues surrounding competition law will need to be addressed. Twitter is already a prominent company in the social media industry. If coupled with TikTok’s large (and still growing) market share, there may be issues with a lack of competition.

The banning of a foreign company by the Trump administration is, in itself, problematic from a legal standpoint. Documents proving that the U.S. president based his decision on real evidence have not been sufficiently provided to the public. Further, TikTok did not get to have its day in court yet, limiting its ability to make a case for itself. It can be argued that Trump is using its political powers in an ultra-vires way, going outside of its scope to gain the upper-hand in the trade war between the U.S. and China.

Further, the conditions set by the U.S. president may be unfairly harsh for TikTok to properly evaluate its options and come to an agreement without any undue pressure. Trump’s request for a ‘slice of the deal’ is also legally dubious, as Trump is holding a public office but interfering with private agreements.

Questions for Individual Thinking:

  1. Is TikTok only a pawn in the chess game the U.S. and China are involved in during their trade war?

  2. What could TikTok do to save its U.S. operations, or get a better selling price/ stronger bargaining power?

  3. Should it be lawful for presidents to demand a portion of private agreements?

Malcolm Zoppi

Born in Switzerland, grew up in the Bahamas, studying in England, completed an Erasmus year in Denmark, and now living in Spain.

Malcolm prides himself on his internationality and ability to analyse current affairs from different perspectives.

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