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Microsoft and Bytedance Put TikTok Talks on Hold After Trump Signals Opposition -- 2nd Update

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08/02/2020 | 10:11am EDT

By Georgia Wells and Cara Lombardo

Microsoft Corp. has paused negotiations to buy the U.S. operations of the video-sharing app TikTok after President Trump said late Friday he opposed the deal, according to people familiar with the matter.

The president's statements spurred TikTok to make additional concessions, including agreeing to add as many as 10,000 jobs in the U.S. over the next three years, but it isn't clear if those will alter Mr. Trump's stance, one of the people said. The founder of TikTok parent Bytedance Ltd., Zhang Yiming, also agreed to sell his stake as part of any deal, the person said.

Mr. Zhang was going to retain a minority stake under the deal being discussed before Mr. Trump's remarks, the person said.

The software giant was in advanced talks with Bytedance, gaining momentum toward a deal they believed met the White House goal for the popular app to get bought by a U.S. company, the people said. Those plans were interrupted when Mr. Trump told reporters on Air Force One that he preferred to ban the app and wouldn't support a sale.

Before Mr. Trump's remarks, the two sides believed the broad strokes of a deal could be in place by Monday, the people said.

The companies were caught off guard by the president's comments, said one person familiar with the matter. Another person said the White House has been involved in the discussions for weeks and made it clear from the outset that the desired outcome was for TikTok to be "American-owned."

In a statement Saturday, a White House spokesperson said, "The administration has very serious national security concerns over TikTok. We continue to evaluate future policy."

On Sunday, Treasury Secretary Steven Mnuchin said there was agreement in the Trump administration and among congressional leaders that TikTok can't operate in the U.S. in its current form, citing national-security concerns.

He said the president could force a sale or block the app in the U.S. using existing authority.

"Everybody agrees it can't exist as it does," he said.

The deal talks aren't believed to be dead, and some executives involved hope that Mr. Trump will change his mind and allow the deal to proceed, now that the transaction is structured the way he had requested, one person said.

The two companies are trying to get clarity on where the White House stands and whether it is planning a separate action that would make it difficult for TikTok to operate in the U.S., the people said.

Mr. Trump said that he preferred to ban the app entirely.

"As far as TikTok is concerned we're banning them from the United States, " he said. "Well, I have that authority."

The mixed signals reflect divisions within the White House about the appropriate course of action, according to people familiar with the matter. Mr. Mnuchin and Secretary of State Mike Pompeo are believed to favor a sale of TikTok to Microsoft, the people said.

White House counsel Pat Cipollone and Matthew Pottinger, the president's deputy national-security adviser, have been involved in trying to broker the deal, White House officials said.

Among the fears is a public backlash if the administration forces the wildly popular app, known for its dancing and lip-sync videos, from the phones of millions of teenagers.

At a Friday morning meeting, Treasury officials told the Committee on Foreign Investment in the U.S. that a Microsoft deal was imminent, said people familiar with the matter.

Others in the White House, most notably trade adviser Peter Navarro, have urged Mr. Trump to take a harder line against TikTok, the people said.

Mr. Navarro didn't respond to requests for comment. He has previously said he doesn't believe allowing TikTok to be sold to an American company solves the national-security issues at play.

U.S. officials have expressed concerns that TikTok could pass on the data it collects from Americans to China's authoritarian government. TikTok has said it would never do so. Officials also worry that the app could be used to spread Chinese propaganda and that the platform's moderators are censoring content to appease Beijing. The company has said it is increasingly adapting its content policies to be tailored to local markets where it operates, including the U.S., and that Beijing doesn't dictate policies for those.

The high-stakes haggling threatens to scuttle an ambitious play from Microsoft to take on Facebook Inc. in social media. The software giant initially plans to let TikTok operate independently, one person said, much as it has done with LinkedIn since acquiring that company for more than $26 billion in 2016.

TikTok says it has 100 million users in the U.S. It isn't yet profitable, as it has spent heavily to acquire users in recent years, but internally the company projects it will have $1 billion in revenue this year and $6 billion next year, said a person familiar with the matter.

The company currently has about 1,500 employees in the U.S.

A sale to Microsoft, likely for billions of dollars, would be a win for both TikTok and Bytedance, where executives for months have feared that the Trump administration will take action that forces the app out of the U.S.

Mr. Zhang has been closely involved in the talks, said people familiar with the matter. TikTok CEO Kevin Mayer, who joined the company in June from Walt Disney Co., hasn't been as central to the negotiations, the people said.

"I want to say thank you to the millions of Americans who use TikTok every day," TikTok's U.S. general manager said in a video the company posted to the platform on Saturday. "We're not planning on going anywhere."

--Kate O'Keeffe, Michael C. Bender, and Kate Davidson contributed to this article.

Write to Georgia Wells at Georgia.Wells@wsj.com and Cara Lombardo at cara.lombardo@wsj.com


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