San Francisco-based artificial intelligence startup Perplexity AI has joined the growing list of potential TikTok "buyers" with its bold and revised merger proposal to ByteDance, TikTok’s Chinese parent company. This proposal, submitted last week, outlines an ambitious plan to merge Perplexity with TikTok’s U.S. business, creating a new entity that would grant the U.S. government a substantial 50% ownership stake upon a future initial public offering (IPO).
The bid comes after a bipartisan law mandated TikTok sever ties with ByteDance by January 19 or face a nationwide ban, though enforcement was delayed by a 75-day executive order.
Lawmakers have voiced fears that TikTok’s Chinese ownership could enable data access by Chinese authorities or algorithm manipulation for propaganda, though no evidence has surfaced to substantiate these claims.
Amid heightened scrutiny over TikTok’s ownership structure, Perplexity’s proposal offers a unique middle ground. By involving the U.S. government directly in the ownership structure without ceding operational control, the plan aims to safeguard American interests while keeping TikTok operational and accessible to millions of U.S. users.
The Key Details of Perplexity AI’s TikTok Proposal
According to sources familiar with the matter, Perplexity AI’s revised bid for TikTok presents a unique and strategic approach to addressing the regulatory challenges surrounding the app's operations in the United States.
Central to the proposal is the formation of a new U.S.-based holding company, tentatively named "NewCo," which would serve as the governing entity for TikTok’s U.S. business.
Under this proposed structure, several significant changes would take place:
- The U.S. government could own up to 50% of the new entity following a future initial public offering (IPO), provided the IPO achieves a valuation of at least $300 billion. While this ownership stake would not include voting rights, it symbolizes a direct commitment to addressing national security concerns while maintaining transparency in the company’s governance.
- Existing ByteDance investors would retain equity in the newly formed entity, ensuring that the Chinese parent company does not sever ties entirely. However, ByteDance would not have control over the company’s operations or decision-making within the U.S. market.
- To strengthen the proposal, Perplexity AI has offered to be acquired by the new holding company. This move would allow Perplexity’s investors to receive equity in the merged entity, creating a unified front and bolstering the financial foundation of the deal.
This revised bid was shaped in part by feedback from the Trump administration, which has consistently pushed for reduced Chinese ownership in TikTok while emphasizing the need to safeguard national security.
By including U.S. government ownership and excluding ByteDance from operational control, the proposal seeks to strike a delicate balance between preserving TikTok’s accessibility to American users and alleviating fears of foreign influence.
Additionally, the bid leaves room for further collaboration with other potential investors to solidify the financial structure of "NewCo."
TikTok’s Algorithm Stays with ByteDance in Proposed U.S. Deal
A notable and contentious aspect of the Perplexity AI proposal is the exclusion of TikTok’s proprietary recommendation algorithm from the deal. ByteDance would retain ownership of this critical technology, which has been instrumental in making TikTok one of the most engaging and widely used platforms globally, with nearly 1.6 billion active users worldwide.
The algorithm, which determines the content users see on their feeds, is considered ByteDance’s crown jewel, underpinning the app’s success and competitive edge.
This move aligns with ByteDance’s efforts to protect its intellectual property while also addressing U.S. national security concerns. U.S. lawmakers have raised fears that the algorithm could potentially be used to influence public opinion or collect sensitive user data.
However, by excluding the algorithm from the deal, ByteDance aims to strike a balance between maintaining its technological leverage and complying with U.S. regulations.
The new structure proposed by Perplexity AI introduces a significant governance shift. Under the plan, TikTok’s U.S. operations would be overseen by a fully American-controlled board, ensuring decisions about the app’s U.S. market remain free from foreign influence.
This marks a pivotal concession that could help alleviate lingering concerns about the app’s ties to China.
A Pivotal Moment for TikTok: Will Perplexity AI’s Plan Succeed
Perplexity AI’s bid offers a potential path forward for TikTok’s U.S. operations amidst heightened scrutiny and legislative challenges. It involves the U.S. government as a key stakeholder and excludes ByteDance’s core algorithm.
The proposal seeks to address both security concerns and allow ByteDance to retain its proprietary algorithm. As TikTok remains operational in the U.S. for now, the coming weeks will be critical in determining whether this bold merger plan will materialize or if new roadblocks will emerge.
