Perplexity AI, a U.S.-based search engine startup, has submitted a revised merger proposal to ByteDance, TikTok’s Chinese parent company. The updated proposal outlines a plan to create a new entity combining Perplexity and TikTok’s U.S. operations, with the U.S. government potentially owning up to a 50% stake after a future initial public offering (IPO), according to a source familiar with the matter.
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Proposed “NewCo” Structure and U.S. Government Ownership
The proposal, detailed in a document shared with ByteDance and potential investors, envisions the formation of a new U.S. holding company called “NewCo.” Under this structure, ByteDance would sell TikTok U.S. to investors, granting equity in the new company to existing TikTok investors. Significantly, the proposal excludes TikTok’s core recommendation algorithm, which would remain under ByteDance’s control. Following a projected IPO with a minimum valuation of $300 billion, the U.S. government would acquire up to 50% ownership of NewCo.
The proposal also includes a provision for Perplexity AI to be acquired by the holding company, contingent upon Perplexity’s investors receiving a distribution of NewCo equity.
Background on TikTok’s U.S. Operations and Previous Proposals
This revised proposal follows the recent restoration of TikTok services in the U.S. after a period of uncertainty surrounding its future in the country. Previously, TikTok had been banned due to national security concerns raised under a U.S. law. The ban was subsequently lifted. President Donald Trump had previously stated he was in discussions with various parties regarding the acquisition of TikTok and anticipated a decision within 30 days.
Earlier reports indicated that Perplexity AI had submitted an initial bid for a merger with TikTok U.S., proposing the creation of a new entity by combining the merged company with New Capital Partners. Perplexity AI believed its merger approach, as opposed to an outright sale, could have a higher likelihood of success.
Potential Implications and Future Outlook
This revised proposal, with its significant offer of U.S. government ownership, introduces a new dimension to the ongoing discussions surrounding TikTok’s fate in the United States. The proposal attempts to address national security concerns while allowing for the continued operation of the popular platform. The complexities of the deal, including the separation of the recommendation algorithm and the involvement of multiple stakeholders, suggest a potentially lengthy and challenging negotiation process. Further developments will likely hinge on the responses of ByteDance, potential investors, and the U.S. government.
Former U.S. President Donald Trump speaking at a podium.
Conclusion
The revised merger proposal from Perplexity AI presents a novel approach to resolving the ongoing challenges surrounding TikTok’s operations in the U.S. The offer of significant U.S. government ownership in the newly formed entity could potentially address national security concerns while preserving the platform’s functionality. However, numerous complexities remain, and the ultimate outcome will depend on the responses of all involved parties. The future of TikTok in the U.S. continues to be a subject of intense scrutiny and negotiation.
