WASHINGTON (BLOOMBERG, REUTERS) - President Donald Trump only agreed to allow Microsoft Corp to negotiate the acquisition of popular short-video app TikTok if it could secure a deal in 45 days, three people familiar with the matter said on Sunday (Aug 2).

The move represents an about-face for Trump and prompted the US tech giant to declare its interest in the blockbuster social media deal that could further inflame US-China relations.

Trump said on Friday he was planning to ban TikTok amid concerns that its Chinese ownership represents a national security risk because of the personal data it handles.

The proposed acquisition of TikTok, which boasts 100 millions US users, would offer Microsoft a rare opportunity to become a major competitor to social media giants such as Facebook and Snap.

Microsoft also owns professional social media network LinkedIn.

Trump had dismissed the idea of a sale to Microsoft on Friday.

But following a discussion between Trump and Microsoft CEO Satya Nadella, the Redwood, Washington-based company said in a statement on Sunday that it would continue negotiations to acquire TikTok from ByteDance, and that it aimed to reach a deal by Sept 15.

This is a deadline that was put to ByteDance and Microsoft by the Committee on Foreign Investment in the United States (CFIUS), which scrutinises deals for potential national security risks, according to the sources.

Trump changed his mind following pressure from some of his advisers and many in his Republican party, one of the sources said.

Banning TikTok would alienate many of its young users ahead of the US presidential election in November, and would likely trigger a wave of legal challenges.

The negotiations between ByteDance and Microsoft will be overseen by CFIUS, according to the sources, who requested anonymity ahead of a White House announcement.

Microsoft cautioned in its statement that there is no certainty a deal will be reached.

"Microsoft fully appreciates the importance of addressing the President's concerns.

It is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits to the United States, including the United States Treasury," Microsoft said in a statement.

ByteDance and the White House did not immediately respond to requests for comment on the Microsoft talks.

In a statement issued late on Sunday that did not mention TikTok, ByteDance said it faced "complex and unimaginable difficulties" in going global.

As relations between the United States and China deteriorate over trade, Hong Kong's autonomy, cyber security and the spread of the novel coronavirus, TikTok has emerged as a flashpoint in the dispute between the world's two largest economies.

State-backed newspaper China Daily on Monday called ByteDance the victim of a "witch hunt" from the United States, and said Washington had not provided evidence to support its allegation that TikTok posed a threat to US national security.

Under the proposed deal, Microsoft said it would take over TikTok's operations in the United States, Canada, Australia and New Zealand.

It said it would ensure that all private data of TikTok's American users is transferred to and remains in the United States.

Microsoft may invite other American investors to acquire minority stakes in TikTok, the company added.

About 70 per cent of the outside capital ByteDance has raised has come from the United States.

It is not clear how much Microsoft could pay for TikTok.

Reuters reported last week that ByteDance's valuation expectations for the app exceeded $50 billion (S$68.7 billion), although US pressure to divest it could lower that price tag.

A key issue in the negotiations will be separating TikTok's technology from ByteDance's infrastructure and access, to alleviate US concerns about the integrity of personal data.

ByteDance owns a Chinese short video app called Douyin that was based on the same code used for TikTok.

One idea under consideration is to give Microsoft and ByteDance a transition period to develop technology for TikTok that will be completely separate from ByteDance, one of the sources said.

Microsoft said it did not intend to provide further updates until there was a definitive outcome in the negotiations.

APP SCRUTINY

The United States has been increasingly scrutinising app developers over the personal data they handle, especially if some of it involves US military or intelligence personnel.

Ordering the divestment of TikTok would not be the first time the White House has taken action over such concerns.
Earlier this year, Chinese gaming company Beijing Kunlun Tech sold Grindr, a popular gay dating app it bought in 2016, for $620 million after being ordered by CFIUS to divest.

In 2018, CFIUS forced China's Ant Financial to scrap plans to buy MoneyGram International over concerns about the safety of data that could identify US citizens.

ByteDance was valued at as much as $140 billion earlier this year when one of its shareholders, Cheetah Mobile, sold a small stake in a private deal, Reuters has reported. The start-up's investors include Japan's SoftBank Group.

US Secretary of State Michael Pompeo had earlier said that the Trump administration would announce measures against "a broad array" of Chinese-owned software deemed to pose national-security risks.

The comments suggest a possible widening of US measures beyond TikTok, the popular music-video app owned by ByteDance, one of China's biggest tech companies.

"If the company & data can be purchased & secured by a trusted US company that would be a positive & acceptable outcome," Senator Marco Rubio of Florida said on Twitter.

Senator Lindsey Graham of South Carolina, a Trump confidant, tweeted that he understands the concerns of TikTok fans and users and that Microsoft taking over would be a "win-win".

Senators John Cornyn of Texas and Roger Wicker of Mississippi made similar comments, although Wicker also urged "tight security measures" to protect consumer data.

Chinese software companies doing business in the US are feeding data directly to Chinese authorities "whether it's TikTok or WeChat - there are countless more," Pompeo, on of the Trump administraton's China hawks, said on Fox News Channel's "Sunday Morning Futures".

Trump "will take action in the coming days with respect to a broad array of national-security risks that are presented by software connected to the Chinese Communist Party," Pompeo said.

Trump can either "force a sale" of TikTok or block the app by executive order, Treasury Secretary Steven Mnuchin said on ABC's "This Week," adding that he wouldn't discuss specifics on his talks with the president on the topic.

CFIUS OBJECTIONS

Mnuchin, who heads the Committee on Foreign Investment on the United States, or CFIUS, said "the entire committee agrees that TikTok cannot stay in the current format because it risks sending back information on 100 million Americans".

That view that "there has to be a change" is shared by lawmakers including House Speaker Nancy Pelosi and Senate Democratic Leader Chuck Schumer, Mnuchin said.

TikTok has become one of the world's most popular apps. It's been downloaded more than 2 billion times globally and more than 165 million times in the US ByteDance is prepared to sell 100 per cent of TikTok's US operations as a way to head off a ban by Trump, two people with knowledge of the situation said earlier.

TikTok has hired almost 1,000 people in the US this year and will be employing another 10,000 into "great paying jobs" in the US, a company spokeswoman said in a statement.

The business's $1 billion creator fund also supports people in the country who are building livelihoods from the platform, she added.

"TikTok US user data is stored in the US, with strict controls on employee access," she said.

"TikTok's biggest investors come from the U.S. We are committed to protecting our users' privacy and safety."

Chinese state media defended TikTok, characterising the Trump administration's antagonism towards the company in a similar fashion to US politicians' attitude towards the Chinese global networking giant Huawei Technologies.

The China Daily wrote in an editorial on Sunday that "although the Oval Office claims to oppose authoritarianism, it has a penchant for arbitrarily demonstrating its own authority."

And an editorial in the Global Times, one of China's most combative state-run papers, said that "the US claim that TikTok threatens its own national security is purely hypothetical and unwarranted charge - just like the groundless accusation that Huawei gathers intelligence for the Chinese government."