Congress’ TikTok bill faces a massive hurdle

Who in America could buy TikTok?

That question crashed suddenly onto Washington’s agenda, after the House passed a bill Wednesday calling for a forced sale of the popular video-sharing app.

As the Senate decides whether to take up the bill, the attention of the finance world and regulators is turning to how a TikTok sale would actually happen — what company, or investor group, has the heft to afford one of the most valuable tech platforms in the world? And how could they do it legally?

With a price that could potentially reach into the hundreds of billions of dollars, TikTok is out of reach to all but a few of the world’s wealthiest companies. Many likely suitors would face instant antitrust scrutiny. China, the home of TikTok parent company ByteDance, is threatening to withhold much of the app’s underlying technology if a sale goes through.

A fresh political and ethical wrinkle emerged Thursday, when former President Donald Trump’s former Treasury secretary, Steven Mnuchin, told an interviewer he was assembling an investor group to buy TikTok if the Senate passes the bill and the president signs it into law.

“It’s a great business,” Mnuchin said of the video-sharing platform on CNBC’s Squawk Box, adding “It should be owned by U.S. businesses.”

Whether it does end up owned by Americans — or shuts down, or survives Washington’s assault unaffected — will depend on a series of dominoes that have yet to start falling.

The Senate

As soon as the House voted to pass the bill, 352-65-1, all eyes turned to the Senate to see if it will take up the bill.

Senate Majority Leader Chuck Schumer has been noncommittal about whether or not it will take up the House bill or a companion bill, but other key senators have set the ball into motion.

The House version has the backing of Senate Intelligence Chair Mark Warner (D-Va.) and Vice Chair Marco Rubio (R-Fla.). “We are united in our concern about the national security threat posed by TikTok,” the lawmakers said in a statement on Wednesday, adding that they “look forward to working together to get this bill passed through the Senate and signed into law.”

Senate Commerce Chair Maria Cantwell (D-Wash.), whose committee would have jurisdiction over any likely TikTok bill, said she hopes to move legislation "soon,” but that she would prefer “something a little more robust and long term.”

Cantwell proposed a different bill last year that would have empowered the Commerce Department to ban foreign-owned apps like TikTok. Commerce Secretary Gina Raimondo has publicly backed that proposal.

Senators could be in for public pressure. TikTok’s CEO, Shou Chew, posted a video on Wednesday night exhorting users to protest the bill and call their senators, continuing the company’s weeklong direct-pressure campaign targeting Congress.

He also indicated that TikTok would fight the bill in court if it became law.

“We will continue to do all we can, including exercising our legal rights,” Chew said in the video posted on TikTok.

The buyer

As a wholly owned subsidiary, TikTok is hard to value. But as an independent company, it would likely become one of the world’s most valuable tech platforms. Its Chinese parent company, ByteDance, was valued at $220 billion as of March 2023, according to PitchBook.

Dan Ives, a managing director at wealth management firm Wedbush Securities, estimated TikTok could sell for $100 billion if the sale included the source code for the app’s algorithm, and for $40 billion without.

Most companies able to afford it would face antitrust concerns, said Bill Baer, who led the Department of Justice’s antitrust enforcement efforts during the Obama administration. “The other big platforms would face serious and legitimate antitrust scrutiny.”

Nevertheless, Baer said it was not a foregone conclusion that a forced sale would trigger the attention of regulators. The right buyer “could preserve the competitive status quo or perhaps even improve it,” he said.

The unusual circumstances of the sale could also snarl the deal. Back in 2020, Microsoft tried, and failed, to buy TikTok when the Trump administration attempted to force a sale and was looking for a buyer.

A person familiar with the 2020 negotiations between Microsoft and TikTok, granted anonymity to discuss sensitive conversations, said TikTok walked away from those talks in part because Microsoft viewed TikTok as a “distressed asset” and “wanted a rock-bottom price.” The person said TikTok was ultimately unwilling to sell the company at the low valuation envisioned by Microsoft.

Earlier this week, Rep. Raja Krishnamoorthi (D-Ill.), co-sponsor of the House TikTok bill, waved away worries that it will be tough to find a viable TikTok buyer. “There might be a consortium — I don’t know, that’s up to the private sector to decide. Suffice it to say, there’s no shortage of interest,” he said.

Krishnamoorthi compared TikTok’s situation to the pressure Washington placed on the former Chinese owner of Grindr to sell the LGBTQ+ dating app. After a government panel that reviews foreign investments raised security concerns regarding the app’s ties to China, Grindr was sold to an American company in 2020. But Grindr was a far smaller asset, with a sale price of only $608 million.

Mnuchin’s offer opened up a new possibility — that a consortium of investors with political connections could emerge to navigate a smooth takeover.

Warner appeared open to Mnuchin’s investor group buying TikTok, saying he worked well with him when he was Treasury Secretary.

“I think the fact that he’s got the experience in assembling investors and is aware of the national security risks — we’ll see whether he can put a group together that would be the sufficient size,” the senator told reporters in a video call Thursday, noting the potential $100 billion-plus price tag of TikTok. “My hope is that there will be other bidders as well,” he added.

Florian Ederer, an economist at Boston University that specializes in competition policy, said a Mnuchin-led consortium is unlikely to trigger significant action from the antitrust agencies — but it might invite other regulators to question the deal.

Mnuchin was chair of the Committee on Foreign Investment in the U.S. during the Trump administration, a secretive group of agency representatives that probes companies’ foreign ties and which carefully scrutinized TikTok’s business in 2020. Mnuchin’s CFIUS recommended that ByteDance sell TikTok. A later effort by Trump to ban the app failed in the courts.

In his role at CFIUS, Mnuchin was potentially privy to confidential or classified information about the company — meaning any Mnuchin-affiliated consortium looking to buy TikTok will likely face more scrutiny from the Securities and Exchange Commission.

“The question is sort of like, does [Mnuchin] have access to documents that are still classified, or that he saw in 2020 that were classified then and have not been declassified?” Ederer asked. “Absolutely that would be a conflict of interest.”

A spokesperson for Mnuchin could not be reached to answer those questions.

What are they buying?

An app like TikTok is ultimately a bundle of its brand, software and algorithms. Eliminating any piece of it would fundamentally change the company, said Nazak Nikakhtar, a former assistant secretary of Commerce under Trump.

Beijing has previously added TikTok’s much-coveted algorithm to an export-control list, effectively preventing it from being sold without the government’s approval, noted Nikakhtar, who now chairs the national security practice at law firm Wiley Rein.

“Even if the U.S. government can somehow technically, legally force a divestment, what do you actually disentangle?” she said on an episode of the POLITICO Tech podcast.

Should ByteDance refuse to sell TikTok with its source code, the deal could fall apart, several observers said.

Currently, 60 percent of Bytedance is owned by global institutional investors such as Carlyle Group, General Atlantic and Susquehanna International Group, the fund of conservative mega-donor Jeff Yass. According to TikTok, ByteDance employees own another 20 percent, and the last 20 percent is owned by the company's founder — Chinese entrepreneur Zhang Yiming.

China has also used the House bill as a chance to attack American policy, saying it sets the U.S. down a pathway of tit-for-tat competition. China foreign ministry spokesperson Wang Wenbin said Thursday that if the bill becomes law, “it puts the U.S. on the opposite side of the principles of fair competition and international trade rules” and accused the U.S. of “sheer robbers’ logic.”

The House bill is driven by worries about the national security implications of the Chinese-owned app, and has the backing of the Biden administration’s intelligence agencies. This week, the agencies briefed House members about TikTok’s national security concerns, saying TikTok accounts run by China’s government have already meddled in U.S. elections and have the potential to do so in 2024.

The Chinese government reiterated its criticism of the legislation, calling it unfair and against the rules of global trade. “The United States didn’t find evidence of TikTok threatening national security, but they abuse state power and find groundless reasons to go after the company,” Wenbin said at the Thursday briefing.

Anthony Adragna, Declan Harty, Zachary Warmbrodt and Phelim Kine contributed to this report.