Twitter, TikTok Have Held Preliminary Talks About Possible Combination--Update

By Georgia Wells and Cara Lombardo 

Twitter Inc. has had preliminary talks about a potential combination with TikTok, the popular video-sharing app that the Trump administration has declared a national-security threat due to its Chinese ownership, according to people familiar with the matter.

It is unclear whether Twitter will pursue a deal with TikTok, which would face significant challenges. A deal would involve TikTok's U.S. operations, the people said.

Microsoft Corp. has been negotiating for weeks with TikTok's owner, Beijing-based ByteDance Ltd., and is considered the front-runner for any possible deal, according to the people. Twitter is seen as a long-shot bidder, given that it is much smaller than Microsoft and would have a harder time paying for the deal -- and the software giant is further advanced in negotiations.

Microsoft said on Aug. 2 that it was pursuing a deal, and that CEO Satya Nadella had discussed the issue with President Trump. Microsoft said it was negotiating for TikTok's operations in the U.S., Australia, Canada and New Zealand.

President Trump has said that TikTok must find a buyer for its U.S. operations by Sept. 15 or face a ban. On Thursday, the White House issued an executive order that would bar people in the U.S. from transactions with ByteDance.

It is not clear what the valuation of TikTok's U.S. operations would be, but estimates run into the tens of billions of dollars, which raises questions about how Twitter would finance any deal. Twitter's market capitalization is about $29 billion and Microsoft's is more than $1.6 trillion.

Because it is much smaller, Twitter has reasoned that it would be unlikely to face the same level of antitrust scrutiny as Microsoft or other potential bidders, said people familiar with the discussions.

Twitter would almost certainly need help from other investors if it does buy TikTok. The company has far less financial firepower than other major tech players, though it does have high-powered investors such as private-equity firm Silver Lake. Twitter started making a consistent profit in the past couple of years, but reported a $1.23 billion loss in the latest quarter. Twitter reported $7.8 billion in cash and short-term investments as of June, compared with more than $136 billion for Microsoft.

If a deal does ultimately come together, it would reshape Twitter. Although Twitter allows users to upload videos, the app's focus is on short messages of text and images.

Mr. Trump is Twitter's most high-profile user, but he has lately criticized the company for labeling or restricting some of his posts that it says violate its policies. Such moves have fueled the president's claim that Silicon Valley tech firms are biased against him.

Mr. Trump's statements against TikTok have caused concern among potential buyers. Microsoft and ByteDance have been discussing a potential deal for weeks, The Wall Street Journal has reported. But when Mr. Trump told reporters aboard Air Force One on July 31 that he planned to ban TikTok, the companies were caught off guard and paused their discussions until they had more clarity about Mr. Trump's plans, the Journal has reported.

Mr. Trump has also said that the U.S. government should receive a "very big proportion" of the sale price, a condition that will further complicate negotiations. It has also stoked public anger in China.

Unlike Microsoft, Twitter does not operate in China. China blocked access to Twitter in 2009.

For Twitter, a deal could help jumpstart a social-media company that has struggled to find its footing despite widespread use of its main platform. Activist investor Elliott Management Corp. earlier this year pushed Twitter to make changes, including naming additional board members and a full-time CEO since Chief Executive Jack Dorsey splits his time between Twitter and Square Inc., where he is also CEO. Twitter added board members, but kept Mr. Dorsey on as part-time CEO.

Pursuing TikTok would be somewhat of an about-face for Twitter on video-sharing apps. The company shut down Vine, an app that let users share short, looping videos, in 2016 as a part of a cost-cutting effort.

Write to Georgia Wells at [e-mail] and Cara Lombardo at [e-mail]

(END) Dow Jones Newswires

August 08, 2020 19:34 ET (23:34 GMT)

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