The executive order by the US president Donald Trump to ban TikTok in 45 days if its Chinese parent company, ByteDance, doesn’t sell to an American company, has thrown the app into a race of survival.
TikTok has been in talks with Microsoft for acquisition, but it’s not sure if a deal will materialize as time ticks against the short video app.
As the uncertainties unwind, Twitter has reportedly approached ByteDance for the acquisition of Tiktok’s US operations. People familiar with the matter have told Reuters. But analysts doubt if Twitter could outbid Microsoft with its $30 billion market capitalization, unless it has to raise more capital to fund the deal.
“Twitter will have a hard time putting together enough financing to acquire even the U.S. operations of TikTok. It doesn’t have enough borrowing capacity,” said Erik Gordon, a professor at the University of Michigan. “If it (Twitter) tries to put together an investor group, the terms will be tough. Twitter’s own shareholders might prefer that management focus on its existing business.”
TikTok’s US operations have been valued at $50 billion but it seems Microsoft is working on cutting the cost as it’s the only American company in talk with ByteDance before now.
Trump’s move to ban TikTok has been criticized, and analysts believe it will likely draw retaliation from China. Trump has said he would support Microsoft to acquire TikTok, but the deal will likely draw scrutiny from regulators.
Twitter believes it stands a chance at the acquisition because it will face less scrutiny from regulators than Microsoft. Moreover, the bird app is banned in China, which means it will not have to go through any pressure from the Chinese government.
Microsoft said it would conclude the deal mid-September. But Twitter’s interest has increased the pressure on the negotiation table, suggesting that more time may be needed to complete the deal. And if the deadline is not met, TikTok will have everything to lose. But it appears it won’t give in without a fight.
The video app is planning to sue the Trump administration on Tuesday, to challenge the ban. A source directly involved with the matter said the company will be arguing that Trump’s Executive Order is unconstitutional because it failed to give the company an opportunity to respond.
“It’s based on pure speculation and conjecture. The order has no findings of fact, just reiterates rhetoric about China that has been kicking around,” the source said.
The ban has been based on the concern that China will have access to the privacy of Americans using TikTok, or may harvest information from the company’s data centers outside the US.
The effect of the ban will mean that the app will not be able to send software updates, which will make it eventually, non-functional. It will also mean that Google and Apple will be forced to remove the TikTok from their app stores, and American advertisers will no longer buy ads on the platform.
TikTok has repeatedly denied any involvement with the Chinese government, and promised to protect the privacy of its users, but the US government couldn’t wait for it to keep the promise.
The company’s response to Trump’s order said it is shocking because it didn’t follow due process.
“We are shocked by the recent Executive Order, which was issued without any due process. The text of the decision makes it plain that there has been a reliance on unnamed reports with no citations, fears that the app may be used for misinformation campaigns with no substantiation of such fears, and concerns about the collection of data that is industry standard for thousands of mobile apps around the world,” statement from TikTok said.
Procedures for actions like this involve federal notification. If the federal government launches an investigation, it will inform the company with a subpoena or some other means, demanding its response to the allegations. However, TikTok’s legal team said no such notification was served by the US government, and it breaches the standing procedure.
The penalty for violating the Executive Order at the expiration of the 45 days is $300,000 fine per violat, and for willful violators of the order – criminal prosecution.
NPR reported that TikTok’s legal team may be counting on some exceptions in the emergency power used by Trump to issue the order, to argue their case. Part of it says that the power cannot be used to prohibit either “personal communications” or “sharing of film and other forms of media,” which TikTok may argue to be the primary function of its app.
The US Congress may intervene on behalf of TikTok, and overturn the ban, if it believes that Trump has abused the use of emergency economic powers.
But that is unlikely going to happen as the lawmakers have been on the same terrain with Trump on the use TikTok. On Thursday, the senate unanimously passed a bill banning the app on all government-issued devices.
Therefore, TikTok’s plan to sue Trump may have been to buy more time for its acquisition, especially as Twitter and Microsoft are now on the bidding floor.