TikTok is shopping itself and Microsoft is interested

Software giant has $136 billion in reserve to make a deal

As the White House prepares to enact a ban on TikTok from being used by U.S. consumers over security concerns, the popular music app's Chinese-based parent company is looking for a savior in the form of tech giant Microsoft.

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FOX Business was first to report Friday that Microsoft has begun talks to buy the entity. According to people with direct knowledge of the matter, the talks have initially focused on TikTok’s smaller U.S. business, but they say Microsoft might want the scale of the entire company which boasts hundreds of millions of users worldwide.

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Either way, the talks are a realization on the part of Beijing-based Bytedance,  TikTok's parent company, that it needs to unload its U.S. subsidiary before the Trump administration shuts it down. Investment bankers tell FOX Business if the Microsoft deal falls through, Bytedance will certainly shop TikTok wider including to private equity firms. A person with direct knowledge tells FOX Business there are two to three serious buyers that have expressed interest.

Any deal will be closely scrutinized by the Trump administration. "If Microsoft or any U.S. company buys TikTok this will be carefully monitored to make sure there is absolutely no Chinese involvement in the new company," said one Wall Street executive with knowledge of the matter.

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As FOX Business reported earlier Friday, President Trump is prepared to sign an order to force Bytedance to divest its U.S. TikTok operations over security concerns. The divesture notice followed a review by the Committee on Foreign Investment in the United States (CFIUS), an arm of the Treasury Department. CFIUS has been investigating whether TikTok is sharing its user data with the Chinese government for surveillance purposes—which has been vehemently denied by TikTok.

The discussions between Microsoft began about a month ago as the Trump Administration seemed to be moving ahead with a divestiture notice, these people say. That is when Bytedance approached senior Microsoft executives regarding a sale of at least its US operations.

The decision to approach Microsoft stemmed from a realization that not only was TikTok's U.S. operations about to be upended by U.S. regulators but also that Microsoft was possibly the only U.S. tech company not in Congress’ crosshairs that has enough cash that would be allowed to make the purchase, these people added.

According to financial records, the Seattle-based tech titan has $136 billion in cash and liquid investments that can be converted into cash.

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Microsoft was noticeably absent from this week's House Judiciary subcommittee on antitrust on alleged abuses by big tech. Thursday’s session on Capitol Hill showed that there is rare, bipartisan agreement that the companies that testified -- Facebook, Amazon, Apple, and Google – may be reaching monopoly status and should not be allowed to grow through acquisitions.

A TikTok spokesman declined to comment on "rumors or speculation" but did not deny the talks are taking place. Microsoft declined comment and a Treasury spokesman had no comment.

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Bankers are unsure how much TikTok is worth on its own, and it's even more difficult to estimate the value of just its U.S. business, though some believe it could be valued into the tens of billions of dollars given its growing popularity particularly among young people and influencers.

TikTok has 800 million users worldwide and 80 million in the United States. Those users – posting and sharing short music videos -- provide a treasure trove of personal information that the U.S. government believes the Chinese government has forced TikTok to hand over for surveillance purposes.

But these same users and the data they provide could be leveraged by a U.S. company, like Microsoft, for its legitimate business activities as well.

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Microsoft still has questions about any purchase. The tech firm is one of the biggest players in computer software and cloud computing. But it has a limited and mixed record in social media. In 2012 it launched  So.cl (pronounced social) to compete with Facebook but shut it down in 2017. It currently owns and operates LinkedIn, a business-oriented social network with an older demographic that it purchased in 2016.

Microsoft is also unclear if just owning TikTok's U.S. business is worth the effort, bankers say. The TikTok brand would remain and operate globally. Recently, Facebook has said it is looking to compete globally in the short-video business. Bankers think Microsoft may seek to buy the entire company, but it's unclear Bytedance wants to sell all of TikTok.

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