Perplexity AI on Sunday unveiled a revised merger proposal with TikTok’s parent company, ByteDance. The new structure, which seeks to combine Perplexity AI with TikTok U.S., has introduced a notable shift in its approach, allowing for the possibility that the U.S. government could own up to 50% of the newly formed company once it goes public.
The updated proposal, which was obtained by CNBC, could have significant implications for both the future of TikTok and the broader U.S. regulatory landscape surrounding Chinese tech companies.
The proposal outlines the creation of a new U.S.-based holding company, named “NewCo,” which would house the merged entities. ByteDance is expected to contribute TikTok U.S., excluding its core recommendation algorithm, in exchange for equity in the new company. Perplexity AI would similarly offer its assets in exchange for a distribution of equity to its investors. The deal would be funded by “new third-party capital providers,” who would contribute the necessary capital to facilitate the transaction. These funds would provide ByteDance’s investors with a “one-time dividend” in exchange for simplified governance and the potential to scale the new entity.
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Perplexity AI has experienced a meteoric rise since its inception, driven by the booming generative AI market. Starting in 2024 with a valuation of $500 million, the company now stands at a staggering $9 billion, fueled by increasing investor interest and the surge of AI applications across industries. Yet, the company has also faced controversy, with accusations of plagiarism marring its ascent. Nonetheless, investors have viewed AI-assisted search as a growing threat to traditional search engines like Google, with Perplexity AI positioning itself as a key player in this space.
The proposed merger with TikTok U.S. would bring ByteDance’s U.S. operations into the fold while retaining much of the company’s existing investor base. The deal would allow Perplexity AI to expand its reach, particularly in the realm of video content, which would be integrated into the AI-powered platform.
A source close to the situation revealed that ByteDance’s investors would be able to hold on to their equity in the new company, positioning Perplexity to benefit from TikTok’s massive user base and video capabilities.
“This proposal allows us to bring together two powerful platforms,” the source said. “It’s a way for ByteDance to maintain a foothold in the U.S. market without having to divest from TikTok entirely. Perplexity AI is the ideal partner to make that happen.”
U.S. Government Stake: A New Twist in the TikTok Saga
The most striking aspect of the revised proposal is the potential for the U.S. government to own a significant portion of the new company. Under the new plan, the U.S. could acquire up to 50% of the combined entity once it goes public, with an initial public offering (IPO) expected to value the company at a minimum of $300 billion. This move would give the U.S. government a significant stake in a tech giant at the heart of the national debate over data privacy and security concerns.
A source familiar with the negotiations, quoted by CBNC, stated, “The structure of this deal allows the U.S. government to maintain influence over a critical platform while also providing ByteDance with a way to keep a substantial stake in TikTok U.S. The IPO will be a pivotal moment, but the government’s involvement ensures that American interests are protected.”
The proposal comes amid ongoing concerns about TikTok’s ties to the Chinese government, with U.S. lawmakers and regulators raising alarms over national security risks. President Donald Trump, who has long been vocal about TikTok’s potential threats, recently restored the platform’s operations in the U.S. under specific conditions. In a video posted to TikTok earlier this month, TikTok CEO Shou Zi Chew thanked President Trump for his efforts to find a solution that would keep the app available in the U.S.
“I want to thank President Trump for his commitment to work with us to find a solution that keeps TikTok available in the United States,” Chew said. “It’s a complex issue, but we are committed to doing what’s necessary to protect the interests of our U.S. users.”
Perplexity AI is not the only entity vying for a piece of TikTok. Other tech giants, including Microsoft and Oracle, have been reported as potential suitors for the platform, with each bringing its own vision for TikTok’s future in the U.S. The involvement of high-profile figures, including Elon Musk, has further complicated the bidding process, leading to fierce competition for control over one of the world’s most popular social media platforms.
Microsoft, which was previously in talks to acquire TikTok in 2020, is believed to still be interested in purchasing the U.S. operations of the app. Oracle, a longstanding partner of the U.S. government, is also said to be exploring ways to secure a stake in the platform.
Meanwhile, Elon Musk’s potential interest in TikTok has sparked speculation that he may seek to integrate the platform with his other ventures, such as X (formerly Twitter).
Despite the stiff competition, Perplexity AI’s proposal stands out due to its unique structure, which allows ByteDance to retain control over TikTok U.S. while still enabling the U.S. government to play a role in the new entity. This merger proposal, rather than a traditional sale, gives ByteDance a way to work within the regulatory constraints while positioning Perplexity AI to benefit from TikTok’s immense user base and video content.
The revised proposal comes at a time of heightened scrutiny over Chinese tech companies operating in the U.S. Since 2020, TikTok has faced a barrage of challenges from U.S. lawmakers, who have raised concerns about data privacy, cybersecurity, and potential Chinese government influence over the app. In response, ByteDance has taken steps to separate TikTok’s U.S. operations, including proposals to create an independent board and increase transparency.
For its part, the U.S. government has continued to weigh its options, with President Trump signaling that a decision on TikTok’s future could come within the next 30 days.
Some analysts believe that Perplexity AI’s proposal could be a game-changer in the ongoing TikTok saga, offering a potential compromise that aligns with both the business interests of ByteDance and the regulatory concerns of the U.S. government. However, the deal is far from final, and it remains to be seen whether the revised proposal will be enough to satisfy all parties involved.