Microsoft Is in Talks to Buy TikTok, as Trump Weighs Curtailing App

Microsoft Corp. is exploring an acquisition of TikTok’s operations in the U.S., according to a people familiar with the matter. A deal would give the software company a popular social-media service and relieve U.S. government pressure on the Chinese owner of the video-sharing app.

TikTok, the Chinese-owned video app that has been under scrutiny from the Trump administration, is in talks to sell itself to Microsoft and other companies as President Trump weighs harsh actions against the business, including forcing TikTok to divorce itself from its parent company, ByteDance, said people with knowledge of the discussions.

The powerful Committee on Foreign Investment in the United States, or Cfius, has been examining ByteDance’s 2017 purchase of Musical.ly, an app that eventually morphed to become TikTok. The committee has decided to order ByteDance to divest TikTok, and the government is engaged in negotiations over the terms of the separation, according to a person familiar with the administration’s plans, who spoke on the condition of anonymity. White House officials have said TikTok may pose a national security threat because of its Chinese ownership.

On Friday, Treasury Secretary Steven T. Mnuchin, who leads the committee, briefed the president on the divestment plan. But it remains unclear what the president will do, including whether the U.S. would apply a divestment order to all of TikTok’s American operations and whether its actions would affect the app’s global business as well.

Mr. Trump is weighing several other courses of action, including an executive order that could use the vast powers of the International Emergency Economic Powers Act to bar certain foreign apps from American app stores. The Trump administration has also considered whether to add TikTok’s parent to a so-called “entity list,” which would prevent it from purchasing American products and services without a special license, said people with knowledge of the matter. Discussions are expected to continue into this weekend.

In his comments on Friday, Mr. Trump told reporters that there were “a couple of options” with TikTok, including “banning” it. He added, “But a lot of things are happening, so we’ll see what happens. But we are looking at a lot of alternatives with respect to TikTok.”

Later on Friday, Mr. Trump said he planned to take action as soon as Saturday. He added that he was not leaning toward allowing an American company to buy TikTok’s U.S. operations.

It’s unclear how advanced TikTok’s talks to sell itself to Microsoft and other companies are, but changing ownership is crucial for the app. The United States is one of TikTok’s major markets, so continued operations in the country are a priority.

TikTok has discussed other scenarios to alleviate concerns by U.S. officials. In one scenario, non-Chinese investors like Sequoia Capital, SoftBank and General Atlantic could purchase a majority stake in the app from ByteDance, people familiar with the discussions have said.

Any deal would likely be expensive. ByteDance’s valuation recently stood at around $100 billion, according to the research firm PitchBook.

In a statement, TikTok did not address Mr. Trump’s comments or any deal talks. A spokeswoman said the app was confident in its long-term success and that it was committed to protecting the privacy and safety of its creators so they could “bring joy to families.”

Microsoft declined to comment.

The discussions between Microsoft and TikTok were earlier reported by Fox Business. Bloomberg earlier reported that President Trump was poised to announce an order to force ByteDance to sell TikTok’s U.S. operations.

It’s also possible that other potential buyers could come forward, said another person familiar with the discussions. Microsoft’s industry peers — Facebook Inc., Apple Inc., Amazon.com Inc. and Alphabet Inc. — fit the profile of potential suitors, though all are under antitrust scrutiny from U.S. regulators, which would likely complicate a deal.

A purchase of TikTok would represent a huge coup for Microsoft, which would gain a popular consumer app that has won over young people with a steady diet of dance videos, lip-syncing clips and viral memes. The company has dabbled in social-media investments in the past, but hasn’t developed a popular service of its own in the lucrative sector. Microsoft acquired the LinkedIn job-hunting and corporate networking company for $26.2 billion in 2016.

Microsoft can point to one acquisition that came with a massive existing community of users that has increased under its ownership — the 2014 deal for Minecraft, the best-selling video game ever.

Other purchases of popular services have gone less well. The 2011 pickup of Skype led to several years of stagnation for the voice-calling service and Microsoft fell behind newer products in the category. Outside of Xbox, the company hasn’t focused on younger consumers. A TikTok deal could change that, though, and give Microsoft “a crown jewel on the consumer social media front,” Dan Ives, an analyst at Wedbush Securities, wrote in a note to investors Friday.

The developments reflect the increasing pressure on TikTok. For months, lawmakers and the Trump administration have questioned whether the app is susceptible to influence from the Chinese government, including potential requests to censor material shared on the platform or to share American user data with Chinese officials.

“It is well established at this point that apps that have granular access to user data and location and other sensitive personal data are very much on the radar of Cfius and can cause significant national security concerns,” said John P. Kabaelo, a lawyer who represents companies in Cfius reviews.

TikTok generally collects similar amounts of data from mobile phones as other social media apps, said security experts. But Christoph Hebeisen, the director of security intelligence research at Lookout, a company that focuses on the security of mobile devices, said U.S. officials are concerned by the app because “if the parent company is Chinese, which it is in this case, they are under Chinese security law.”

He added, “I don’t think it is a stretch to think if China wanted to access that data they would have a means to do so.”

TikTok is used by more than 800 million people around the world and is especially popular with young people. Users can easily add music and other audio tracks to their videos, which then often travel virally across Facebook and Twitter.

As the app has become more popular, TikTok’s Chinese offices have swollen to thousands of employees. The company has also maintained a U.S. presence, with offices in New York and Los Angeles.

In response to the heightened scrutiny from Washington, TikTok in May hired a top Disney executive, Kevin Mayer to be its chief executive. The app has also pledged to publicly reveal the algorithm that powers its app.

In addition, TikTok has bulked up its lobbying operation in Washington. With help from prominent investors like SoftBank and General Atlantic, it has hired the former head of the Internet Association, a trade group that represents companies like Google and Facebook, and staff members from prominent members from Congress.

The company has signed on more than 35 lobbyists, including David J. Urban, a former West Point classmate of Secretary of State Mike Pompeo and an ally of Mr. Trump. The company’s lobbyists have highlighted TikTok’s American investors and Mr. Mayer’s hire.

Sensing weakness, rivals like Facebook have homed in on lawmakers’ distrust of TikTok’s Chinese ownership. Mark Zuckerberg, Facebook’s chief executive, has said that American companies like his would suffer if the government put them at a competitive disadvantage against TikTok.

On Wednesday, with the chief executives of Amazon, Apple, Facebook and Google testifying in front of Congress about their market power, Mr. Mayer defended TikTok while pledging to do right by the U.S. government.

“The entire industry has received scrutiny, and rightly so. Yet we have received even more scrutiny due to the company’s Chinese origins,” he said in a statement. “We believe it is essential to show users, advertisers, creators, and regulators that we are responsible and committed members of the American community that follows U.S. laws.”

Cfius has previously ordered companies to divest their acquisitions. Congress had expanded the panel’s purview in 2018 to include reviews of transactions involving “sensitive user data,” The change was spurred by concerns that foreign ownership of data gathered by apps and internet sites could threaten national security.

In 2019, the Trump administration ordered a Chinese firm to relinquish its control of Grindr, the gay dating app, concerned that China might use the information to blackmail American officials. The Chinese company, Beijing Kunlun Technology, said it reached a deal with Cfius earlier this year to sell the app to an investment group, San Vicente Acquisition LLC, though Reuters later reported that the buyer had ties to the Chinese owner.