Chinese parent company ByteDance has urged TikTok to draw up contingency plans should it need to shut down its U.S. operations, even as it works toward divesting them, people familiar with the matter said on Thursday.
ByteDance has been ordered by President Donald Trump to divest sell its US arm, amid security concerns over the personal data it handles.
Microsoft and Oracle are among U.S. companies vying to acquire the assets of TikTok, which claims about 100 million monthly active users in the U.S.
On Thursday it emerged that Walmart was teaming up with Microsoft in its bid.
Meanwhile Oracle, which is owned by Trump donor Larry Ellison, has been backed by the president and is said to be the preferred buyer, sources told The Wrap.
ByteDance is expected to pick a bidder to enter into exclusive talks as early as Friday, sources told Reuters.
Trump issued an executive order on August 6 that would ban transactions with TikTok and its Chinese parent in 45 days. He later extended the deadline to 90 days – or November 12.
While TikTok has filed a lawsuit challenging the order, it is preparing for the possibility that it will have to shut down if it has not reached a deal with an acquirer by mid-September, the sources said.
It hopes that any shutdown would be temporary, the sources added.
A sale would have to be greenlighted by both the United States and Chinese governments.
The shutdown contingencies are also aimed at preparing TikTok’s global operations for the possibility that one of the two countries blocks any deal, the sources said.
ByteDance told TikTok engineers in a memo this week to draw up plans for shutting down the app in the United States, the sources said.
ByteDance is also making separate plans for TikTok U.S. employees and vendors to be compensated in the event of a shutdown, one of the sources added.
TikTok has already implemented a hiring freeze in the U.S. for most open positions because of the uncertainty, bringing in only five per cent of the staff it planned to recruit, according to the source.
ByteDance views the shutdown preparations as a back-up plan, and is working toward a deal that would keep TikTok operating in the United States without interruption, the sources said.
The sources requested anonymity as the shutdown preparations are confidential.
ByteDance did not immediately respond to a request for comment, while TikTok declined to comment.
Walmart announced on Thursday it was joining Microsoft in its bid, revealing its plans hours after the app’s recently named chief executive, Kevin Mayer, said he would step down.
Oracle, whose Chairman Larry Ellison is one of the technology world’s few supporters of Trump, has partnered with some of ByteDance’s investors, including General Atlantic and Sequoia, on its bid for the TikTok assets.
The app will reportedly sold within the ‘coming days’ to either Microsoft and Walmart or Oracle, in a $20-30billion deal.
The Wrap cited sources who said Oracle was the preferred buyer and that their offer – which has the backing of Trump – is $10billion in cash and $10billion in Oracle stock.
Half of TikTok’s profits will go back to ByteDance for two years, their sources said.
Trump backed Oracle as the buyer earlier this month, calling it a ‘great company’ and saying: ‘I think that Oracle would be certainly somebody that could handle it.’
In a statement announcing their partnership with Microsoft on Thursday, Walmart said it was eager to be involved in the app which has merged e-commerce with social media and video.
‘We are confident that a Walmart and Microsoft partnership would meet both the expectations of US Tik Tok users while satisfying the concerns of US government regulators,’ the company said in a statement.
Microsoft founder Bill Gates has been hesitant about the deal, referring to TikTok as a ‘poisoned chalice’.
Microsoft’s stock jumped three percent on Thursday as news of the imminent sale emerged. Walmart’s rose by two percent.
However according to reports, Oracle is being backed both by ByteDance’s US investors and by 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 bid over Microsoft’s.
It has also been reported by CNBC that TikTok CEO Kevin Mayer quit after being cut out of negotiations surrounding the sale.
While TikTok is best known for its anodyne videos of people dancing that go viral among teenagers, U.S. officials have expressed concerns that information on users could be passed on to China’s communist government.
In addition to cutting off access for TikTok’s U.S. users, shutting down TikTok could deprive ‘influencers,’ who have built large followings on the app, from income they receive from advertisers for promoting products and services.
While shutting down TikTok in the United States would prevent new users from downloading the app, it is not clear whether those who have already downloaded the app in the United States would lose access.
ByteDance has been in talks to sell TikTok’s North American, Australian and New Zealand operations, which could be worth $25billion to $30billion, since the beginning of this month.