TikTok sale slowed as Chinese government may get involved

Chinese-owned TikTok has received two bids - one from Microsoft and Walmart and a second from a group led by Oracle, according to a person familiar with the negotiations who spoke on the condition of anonymity because they are not authorized to discuss them publicly. TikTok could enter into exclusive negotiations with one of those suitors, based on the offer submitted.

But the deal, if it happens, is going to take longer than previously thought after the Chinese government established export rules that complicate a transaction, the person said.

The short-form video app has been fielding talks from suitors to buy its U.S., Canadian, Australian and New Zealand operations after President Trump issued two orders that essentially ban it from continuing to operate in the country under its current Chinese ownership. But Beijing seemingly threw a wrench in the talks late last week when it updated its export controls list to include some artificial-intelligence technology that probably includes TikTok's personalized recommendation algorithm.

That means TikTok's parent, ByteDance, might need approval from the Chinese government to sell off its prized algorithm - adding another political obstacle to overcome with the U.S. ban less than three weeks away.

TikTok is known for a curated "For You Page" that shows users videos they might be interested in and makes it easier for creators to get their videos in front of other people on the app. It's a big piece of TikTok's appeal for both users and potential buyers.

"You could buy the brand [TikTok] and the user data without the algorithm, but the algorithm is the most valuable part of TikTok and the secret of its success," said James Lewis of the Center for Strategic and International Studies, a think tank in D.C.

The new export rules could imperil the entire deal because the algorithm doesn't merely exist on its own. It's deeply woven into the TikTok app, intertwined with the tools to upload videos as well as the technology behind how users' identities are managed. It may be impossible to strip that out.

ByteDance and the suitors for TikTok need clarity on what the Chinese government will allow to be sold. Without knowing what is ultimately available for sale, buyers can't reasonably know how much to pay.

Microsoft, in partnership with Walmart, and a group led by Oracle both put in bids that factor in the value of the algorithm. The value of TikTok's assets without it would be significantly less. The more time that goes by, the harder it becomes for bidders to properly evaluate TikTok - a crucial process in a bid worth tens of millions of dollars.

TikTok's CEO Kevin Mayer unexpectedly resigned last week just days after the company sued the Trump administration over the ban. He said the role he accepted just three months earlier would "look very different as a result of the US Administration's action to push for a sell off of the US business." He added that the company expected "to reach a resolution very soon."

A ByteDance executive said in a statement that it would abide by the Beijing export rules, without offering many details.

"We are studying the new regulations that were released Friday," general counsel Erich Andersen said. "As with any cross-border transaction, we will follow the applicable laws, which in this case include those of the U.S. and China."

The White House did not comment on Beijing's new rules or if it was considering an extension of the TikTok ban. The ban, which comes at a time of escalating tensions between the United States and China, cites national security concerns over the app, and lawmakers have expressed fears that TikTok could feed U.S. customer data to the Chinese government. The company has said it does not hand over that information and it stores U.S. data within the United States and Singapore.

Trump reiterated the deadline for the deal while talking to reporters Tuesday at Joint Base Andrews.

"Well, I told them that they have until Sept. 15 to make a deal; after that, we close it up in this country," he said according to an Associated Press video.

Microsoft had originally said it would wrap up deal talks by Sept. 15 after its CEO talked to Trump, but Trump's executive order suggested the ban would actually take place the week of Sept. 20.

The Commerce Department still has to decide the scope of the ban, and it is unclear exactly how the company and users will be affected. People probably will still be able to use the app if they already have it downloaded but won't be able to get updates.

A second order from Trump effectively requires ByteDance to divest from TikTok in the country within 90 days from when the order was signed Aug. 14. It could possibly be extended another 30 days.