Shotgun divorce: How ByteDance could save TikTok from a U.S. ban
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Illustration: Brendan Lynch/Axios
A bipartisan bill requiring China's ByteDance to divest TikTok is racing toward the desk of President Biden, who has promised to sign it.
Why it matters: This shotgun divorce is easier legislated than done.
- ByteDance is the world's most valuable VC-backed startup, and TikTok is its crown jewel outside of China.
- What's being proposed is not a "ban." At least not yet.
By the numbers: ByteDance owns 100% of TikTok, while outside investors own 60% of ByteDance. The remainder is split evenly between the company and its global employees.
- The key move, therefore, would be for ByteDance to establish TikTok (or at least TikTok U.S.) as an independent company with its own stock.
- Then, ByteDance and its China-based employees would need to hold less than a combined 20% ownership stake in the new company (the bill also references operational control, which likely would apply to voting control).
Zoom in: Divestiture could be done via a sale, stock swap with existing investors, or IPO.
- Each is feasible, but has its own challenges.
- Even a small stake in TikTok would be extraordinarily expensive, thus knocking out a lot of prospective buyers. Plus, no Big Tech company would be eligible given the current antitrust fervor.
The big picture: A stock swap might require ByteDance to take a haircut, or give up control at cost, while an IPO might be tough to complete in time to comply with the legislative deadline.
- Some of its investors will grumble about any forced divestiture — Susquehanna's Jeff Yass met with Trump shortly before the former president's change of heart — but others will see it as the quickest path to much-needed liquidity.
- And remember, they worked on this once before, after Trump unsuccessfully tried to force divestiture via executive order.
Caveats: ByteDance might refuse to divest in principle, or be prevented from doing so by the Chinese government.
- If so, that's when the divestiture requirement could result in a ban on TikTok in the U.S.
- There's also a competing bill in the Senate, and the near-certainty of litigation were any divestiture bill to become law.
The bottom line: The domestic politics of TikTok are complex, particularly given Trump's recent flip-flop. What happens next with its actual business could prove even more interesting.
Go deeper: What's next for the TikTok sale bill
