By Echo Wang, Alexandra Alper and David Shepardson
NEW YORK/WASHINGTON (Reuters) – The United States is preparing to force ByteDance to shed the U.S. operations of TikTok over concerns the Chinese company’s ownership of the popular short video app jeopardizes personal data, people familiar with the matter said on Friday.
The move would represent a major blow for the Beijing-based company, which became one of only a handful of truly global Chinese conglomerates thanks to TikTok’s commercial success.
It is was not immediately clear how the separation would happen and what ByteDance would do with the rest of TikTok’s global operations. An announcement could come as early as Friday, the sources said, requesting anonymity because the matter is confidential.
ByteDance and the U.S. Treasury Department, which chairs the government panel that has been reviewing ByteDance’s ownership of TikTok, declined to comment.
Treasury Secretary Steve Mnuchin said on Wednesday that TikTok was under a national security review by the Committee on Foreign Investment in the United States and that he would be making a recommendation to President Donald Trump this week.
“We are looking at TikTok, we may be banning TikTok, we maybe doing some other things or a couple of options, but a lot of things are happening,” Trump told reporters on Friday.
As relations between the United States and China deteriorate over trade, Hong Kong’s autonomy, cyber security and the spread of the novel coronavirus, TikTok has emerged as a flashpoint in the dispute between the world’s two largest economies.
Last week, the U.S. Senate Committee on Homeland Security and Governmental Affairs unanimously passed a bill that would bar U.S. federal employees from using TikTok on government-issued devices. It will be taken up by the full Senate for a vote. The House of Representatives has already voted for a similar measure.
ByteDance has proactively been considering a range of options for TikTok amid pressure from the United States to relinquish control of the app, which allows users to create short videos with special effects and has become wildly popular with U.S. teenagers.
ByteDance has received a proposal from some of its investors, including Sequoia and General Atlantic, to transfer majority ownership of TikTok to them, Reuters reported on Wednesday. The proposal values TikTok at about $50 billion.
ByteDance has also fielded acquisition interest in TikTok from other companies and investment firms, Reuters has reported.
ByteDance acquired Shanghai-based video app Musical.ly in a $1 billion deal in 2017 and relaunched it as TikTok the following year. ByteDance did not seek approval for the acquisition from CFIUS, which reviews deals for potential national security risks. Reuters reported last year that CFIUS had opened an investigation into TikTok.
The United States has been increasingly scrutinizing app developers over the personal data they handle, especially if some of it involves U.S. military or intelligence personnel. Ordering the divestment of TikTok would not be the first time the White House has taken action over such concerns.
Earlier this year, Chinese gaming company Beijing Kunlun Tech Co Ltd (SZ:) sold Grindr LLC, a popular gay dating app it bought in 2016, for $620 million after being ordered by CFIUS to divest.
In 2018, CFIUS forced China’s Ant Financial to scrap plans to buy MoneyGram International Inc (O:) over concerns about the safety of data that could identify U.S. citizens.
ByteDance was valued at as much as $140 billion earlier this year when one of its shareholders, Cheetah Mobile (N:), sold a small stake in a private deal, Reuters has reported. The startup’s investors include SoftBank Group Corp. (T:)
The bulk of its revenue comes from advertising on apps under its Chinese operations including Douyin – a Chinese version of TikTok – and news aggregator app Jinri Toutiao, as well as video-streaming app Xigua and Pipixia, an app for jokes and humorous videos.
Some of the company’s other overseas apps include work collaboration tool Lark and music streaming app Resso.
TikTok CEO Kevin Mayer, a former Walt Disney Co (N:) executive, said in a blog post on Wednesday that the company was committed to following U.S. laws, and was allowing experts to observe its moderation policies and examine the code that drives its algorithms.