Microsoft says it'll continue pursuit of TikTok

Microsoft may also bring on a series of outside investors, which would hold minority stakes in any deal. In recent weeks, investors from Sequoia Capital, SoftBank and General Atlantic have all held talks with TikTok to discuss participating in an acquisition of the company, according to two people familiar with the discussions.

Such a deal would be a boon for the Redmond, Washington-based Microsoft, which has pursued corporate and enterprise computing lines of business under the leadership of Nadella, who took over as chief executive in 2014. Though it has dabbled in consumer acquisitions — Microsoft purchased Minecraft in 2014 and bought LinkedIn in 2017 — the purchase of TikTok would be largely new ground for Nadella. More than 800 million people regularly use the app to watch viral videos, with some 100 million of those users in the United States.

Acquiring TikTok would also pit Microsoft directly against social media titans like Twitter, Pinterest, Reddit and the mighty Facebook, the latter used by more than 3 billion people regularly. All of the companies compete for user attention and billions in digital advertising dollars.

The forced sale is the latest in a series of punitive actions the Trump administration has taken against China, which the president blames for allowing the coronavirus pandemic to spread and damage the U.S. economy, diminishing his reelection chances. As the election nears, Trump has increasingly challenged China over security, technology and commercial relations in an attempt to persuade voters that he will be tougher in taking on Beijing than former Vice President Joe Biden.

But a ban on TikTok, which could target its presence in the Apple and Google app stores, would come with other difficulties, including irking millions of young Americans who share viral videos and dance clips on the service. It also most likely would prompt legal challenges, anger prominent Republican lawmakers and dismay the business community.

Those tensions spilled into the open over the weekend as Washington awaited a decision from Trump.

Surrounded by few White House aides Friday night as he returned to Washington aboard Air Force One, Trump caught several advisers by surprise when he told reporters he planned to “terminate” the ability of TikTok to operate in the United States using emergency economic powers or an executive order.

Several advisers were furious, and suggested that Peter Navarro, the top trade adviser who often has Trump’s ear, and other people in the president’s inner circle had helped short-circuit the president’s approval of a possible sale to Microsoft, according to White House officials and others close to the president. Those who opposed the deal had focused on the idea of punishing China, not what could happen to a popular platform. Navarro did not immediately respond to a request for comment.

As the president played golf at his club in Virginia on Saturday, his advisers discussed how to persuade him to sign off on the Microsoft deal — and to convey the political repercussions of simply turning off a service for tens of millions of people in the United States, according to a person familiar with what took place.

Several people, including Treasury Secretary Steven Mnuchin, reached out to Sen. Lindsey Graham, R-S.C., and an informal adviser to Trump, to ask him to intervene.

After speaking with Microsoft officials a few times, Graham eventually tweeted about the deal, saying that Trump was “right to want to make sure that the Chinese Communist Party doesn’t own TikTok and most importantly — all of your private data.”

He added: “What’s the right answer? Have an American company like Microsoft take over TikTok. Win-win. Keeps competition alive and data out of the hands of the Chinese Communist Party.”

The tweet caught Trump’s eye, prompting a call between the two in which Graham told the president that he agreed that the platform was a national security risk, but he stressed the political risks of banning the app.

Some of Trump’s closest political advisers, including Mnuchin and Larry Kudlow, the chief of the National Economic Council, had also urged the president to allow a sale of TikTok.

In a bid to sway the president, several business leaders and prominent Republican lawmakers, including Sens. John Cornyn of Texas and Marco Rubio of Florida weighed in Sunday.

“I was among the first to warn of danger posed by TikTok last year,” Rubio wrote on Twitter on Sunday. “As I have shared with POTUS & @WhiteHouse if the company & data can be purchased & secured by a trusted U.S. company that would be a positive & acceptable outcome.”

Myron Brilliant, the executive vice president of the U.S. Chamber of Commerce, tweeted Sunday that a sale would “be a good solution that helps to address some security concerns, strengthens the US #digitaleconomy, and preserves an app enjoyed by millions of Americans.”

On Sunday, Trump spoke with Microsoft officials after becoming convinced that he was heading off a political issue and solving a security risk, according to a person familiar with what took place.

If a deal ultimately materializes, any agreement would be contingent upon strict data security measures. Microsoft said that it would ensure all private data of American users would be transferred to and held on servers within the United States. “To the extent that any such data is currently stored or backed-up outside the United States, Microsoft would ensure that this data is deleted from servers outside the country after it is transferred,” the company said.

Such a deal would also be contingent upon “providing proper economic benefits to the United States,” according to Microsoft’s statement; one of those benefits could include creating a number of U.S. jobs as a result of the deal, according to a person familiar with the matter.

But the move is unlikely to please all of Trump’s advisers. Some of Trump’s most hawkish advisers, including Navarro, have objected to TikTok’s sale, seeing the moment as an opportunity to push through more expansive measures that could curtail the influence of Chinese apps more broadly.

Speaking on Fox News on Saturday night, Navarro, a noted China critic, criticized the attempted acquisition, saying that Microsoft was “the software that the People’s Liberation Army and Chinese government run on” and that Microsoft helped China build its Great Firewall.

“What this president and the White House is going to be doing is look at any kind of software that sends the information for Americans back to servers in China,” Navarro said. “They’re going to come under scrutiny.”