Chinese parent company ByteDance has asked TikTok to create contingency plans in the event that US operations need to be suspended. Also when it comes to selling them, people familiar with the matter said on Thursday.
ByteDance has been ordered by President Donald Trump to divest the sale of its U.S. arm due to security concerns about the personal data it is processing.
Microsoft and Oracle are among the US companies battling to acquire the assets of TikTok, which has approximately 100 million active users per month in the US.
On Thursday it was revealed that Walmart had teamed up with Microsoft on its offer.
Meanwhile, Oracle, owned by Trump donor Larry Ellison, has been endorsed by the president and is said to be the preferred buyer, sources told The Wrap.
TikTok is preparing for the possibility that it will have to close in the US
Trump has given TikTok 90 days to divest its US operations or it will be forced to shut down
ByteDance is expected to select a bidder for exclusive talks on Friday, sources told Reuters.
Trump passed executive order on Aug. 6 that would ban transactions with TikTok and its Chinese parent company within 45 days. He later extended the deadline to 90 days – or November 12th.
While TikTok has filed a lawsuit against the order, it is preparing for the possibility that the company may have to close if it doesn't reach an agreement with an acquirer by mid-September.
She hopes a shutdown will only be temporary, the sources added.
A sale would have to be approved by both the US government and the Chinese government.
The shutdown contingent liabilities are also aimed at preparing TikTok's global operations for the possibility of either country blocking a deal, the sources said.
ByteDance said in a memo this week to TikTok engineers to make plans to shut down the app in the US.
Larry Ellison, CEO of Oracle, is a Trump billionaire (left). Microsoft founder Bill Gates previously called the app a "poisoned chalice".
ByteDance also plans to have TikTok employees and suppliers in the US receive compensation in the event of a shutdown, one of the sources added.
Due to the uncertainty, TikTok has already introduced a hiring freeze for most vacancies in the USA, which, according to the source, only brings in five percent of the employees it plans to employ.
ByteDance is viewing the shutdown preparations as a backup plan and is working on a deal to keep TikTok running in the US without interruption.
The sources asked for anonymity as the preparations for the shutdown are confidential.
ByteDance didn't immediately respond to a request for comment while TikTok declined to comment.
Walmart announced Thursday that it would join Microsoft and revealed its plans hours after the app's recently appointed executive director Kevin Mayer announced he was stepping down.
Kevin Mayer, TikTok's chief executive officer, has left the company
Oracle, whose chairman Larry Ellison is one of Trump's few supporters in the tech world, has partnered with a few ByteDance investors, including General Atlantic and Sequoia, to promote the TikTok assets.
The app is reportedly being sold to Microsoft and Walmart or Oracle valued at $ 20 billion to $ 30 billion in the coming days.
The Wrap cited sources that said Oracle was the preferred buyer and their offer – which Trump supports – is $ 10 billion in cash and $ 10 billion in Oracle stock.
Half of TikTok's profits go to ByteDance for two years.
Trump backed Oracle as a buyer earlier this month, calling it a "great company" and saying, "I think Oracle would certainly be someone who could handle it."
In a statement Thursday announcing its partnership with Microsoft, Walmart said it was keen to be involved in the app, which has merged e-commerce with social media and video.
"We are confident that a partnership between Walmart and Microsoft will meet the expectations of US Tik Tok users as well as the concerns of US government agencies," the company said in a statement.
Microsoft (left) and Walmart (right) stocks rose Thursday after news of their joint offer broke
Microsoft founder Bill Gates hesitated with the deal, calling TikTok a "poisoned cup".
Microsoft's stock rose three percent on Thursday when news of the upcoming sale broke. Walmart rose two percent.
However, Oracle is reportedly backed by both ByteDance's U.S. investors and the White House.
Earlier this week, the Wall Street Journal reported that General Atlantic and Sequoia Capital – two major US investors in ByteDance – were pushing Oracle's offer over Microsoft's.
It has also been reported by CNBC Kevin Mayer, CEO of TikTok, quit after being banned from negotiating the sale.
While TikTok is best known for its anodyne videos of people dancing and going viral among teenagers, US officials have raised concerns that information about users could be leaked to the Chinese communist government.
In addition to blocking access to US users of TikTok, the shutdown of TikTok "influencers" who have built huge fans of the app could drain the revenue they receive from advertisers for promoting products and services.
While shutting down TikTok in the US would prevent new users from downloading the app, it's not clear if those who have already downloaded the app in the US would lose access.
ByteDance has been in talks since earlier this month to sell TikTok's North American, Australian, and New Zealand operations, which could be valued at $ 25 billion to $ 30 billion.
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