President Trump may have cut a deal to save TikTok from extinction in the US – but investors shouldn’t expect to cash in on a lucrative initial public offering anytime soon, On The Money has learned.
That’s the consensus from people inside the US investment group as they put the finishing touches on a new company that President Trump says satisfies a law that bans the app domestically unless it removes all vestiges of control by its Chinese parent, Bytedance.
The law was meant to prevent the Chinese government from using the short-video app for spycraft. President Trump, once a TikTok critic, did a remarkable about-face after he came to believe pro-MAGA videos helped him win over a major chunk of TikTok’s user base, which is dominated by people under the age of 25.
The problem is that while Trump says TikTok’s new iteration in the US is legal, it might not be later on depending on who occupies the White House. Under the bipartisan legislation approved by the Supreme Court, it’s the president that has final say over whether the deal’s current structure passes legal muster and is free of Chinese “control.”
In a few years, for instance, a Trump-hating Democratic president, say Gavin Newsom or JB Pritzker, might want to stick it to the investors who helped Trump by ruling that the law was purposely circumvented because of the way Bytedance is still involved.
That would lead to massive liabilities for all investors including average Joes who bought shares in an IPO: they could be on the hook for billions of dollars in damages given the way the ban law is written.
Informing small investors of those thorny – and possibly expensive details in IPO documents – would also lead to the mother of all disclosures and expose the weak underpinnings of the current deal’s structure, On The Money has learned.
“The disclosure of the liability would be enough to cast doubt on how the TikTok deal came about,” said one investor involved in the creation of the new company. “That’s why no one sees it happening.”
IPOs, of course, are a rite of passage for most normal private companies with substantial private equity or venture capital investments that want to cash in. TikTok has received financing from the likes of private equity powerhouses KKR, Susquehanna International Group, General Atlantic and even tech giant Oracle.
But even company insiders concede that TikTok’s new iteration – spinning off the US portion of its global operations into a new company – is anything but normal. Trump says the deal is legal, but the Chinese maintain a significant ownership stake in the US operations. They are also leasing to the Americans their all-important algorithm, which is both the addictive secret sauce of the platform, but also the alleged means of China’s spying capabilities.
Yes, tech giant Oracle will be able to rewrite some of the algo’s code to try and remove the spyware, but questions remain on how much anyone can clean this software, which means a president other than Trump could still deem the new structure illegal.
