Mergers and Acquisitions

As The Clock Ticks, Microsoft, Twitter and Netflix Jostle For TikTok

Drew Angerer via Getty Images

Last week, President Trump gave TikTok until September 15th, to be acquired by a U.S. company or face a ban. Microsoft emerged as the immediate front runners but in the week since the announcement, the Chinese social media giant has attracted more suitors.

The takeaways:
  • The Trump administration believes that TikTok is a threat to national security and claims that the Chinese government can gain access to user data from the platform.
  • Microsoft is the current favorite to buy TikTok, which is currently valued at up to $50 billion. A deal may be complex and may hinge on whether Microsoft can acquire all of TikTok’s global assets.
  • Twitter held potential merger talks with the Chinese platform’s parent Bytedance over the weekend, while Netflix may be a latecomer to the game.

Why is TikTok up for sale? Bytedance, the Chinese owner of TikTok, has reiterated it does not want to sell. Their hand may be forced due to the executive order signed by Trump on August 6th.

  • TikTok now has plans to sue Trump over his executive order feeling that the order denied it any due process and is therefore unconstitutional.

TikTok’s plethora of suitors: As the clock winds down to the September 15th deadline, three U.S. companies, Microsoft, Twitter, and Netflix have emerged as potential suitors.

Microsoft – The Front Runner

Microsoft initially planned to only buy TikTok’s operations in the US, Canada, Australia, and New Zealand, although it now has plans to buy TikTok’s global operations.

  • First look: The acquisition could finally make Microsoft in the consumer space. Previous attempts with Groove Music service, the Kinect Xbox accessory, the Mixer Streaming service, and the Windows Phone have all fallen relatively short of expectations. With TikTok under its umbrella, Microsoft could finally compete with the likes of Facebook and Google in the consumer space.
  • The benefit: User data from TikTok would give Microsoft direct insights to millions of young consumers as well as creators and advertisers.
  • Conclusion: Questions will remain even if Microsoft can only acquire the US, Canada, Australia, and New Zealand operations, potentially leaving the rest of the world with a different version of the app. In addition, Microsoft’s previous shortcomings in the consumer space may raise questions about their ability to execute on growing a brand like TikTok.
Twitter – The Newcomer

The WSJ reported on Saturday that Twitter and TikTok had held talks over a potential merger.

  • First look: The potential merger would only be with TikTok’s U.S. operations. Twitter is currently valued at $30 billion and given TikTok’s $50 billion valuation, a move would likely require outside capital.
  • The benefit: If Twitter does somehow manage to the pull of a deal, it would add a huge new source of revenue and vastly increase their user base and demographics.
  • Conclusion: Twitter has previously ventured into the short-form video arena. In 2012, it acquire Vine before shutting it down in 2017 due to failure to find a suitable business model for the 6-second video app. A deal does still look unlikely but if it does succeed Twitter may be able to atone for their shortcomings with Vine.
Netflix – The Outside Bet

There has been no official contact between the two companies but there are some signs that Netflix may throw its hat in the ring.

  • First Look: CNBC’s Alex Sherman reported that Netflix may be in for a deal if Microsoft’s efforts fall short. Although Netflix has no experience with acquisitions, it has large aspirations for its global video productions business, which TikTok could complement. Valued at $221 billion, Netflix could certainly afford to buy TikTok.
  • The benefits: Netflix has long maintained its stance on permitting ads on its platform. Given TikTok’s advertising potential, an acquisition may enable Netflix to keep its streaming business ad-free. Netflix does view TikTok as a competitor and so an acquisition would further strengthen their grip on the video market.
  • Conclusion: TikTok and Netflix could find synergies. TikTok stars could have their own Netflix shows, while Netflix stars can create TikTok accounts. A possible limitation is the acquisition of only the U.S. operations of TikTok, which may not fit Netflix’s vision of being a global entertainment company.

Substitution threats: In addition to the short time frame for a deal to be completed, there are some significant threats to a deal being completed.

  • Just this past week, Instagram launched Reels, its TikTok competitor.
  • TikTok does have plans to sue Trump and if these efforts are successful an acquisition may no longer be required.
  • ByteDance could alternatively accept the ban and hope for better luck with Biden if he wins the election – although Biden has previously told his campaign employees to remove TikTok from their phones.

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