Perplexity AI, a search engine startup, has introduced a revised proposal for a merger with TikTok, presenting a plan that would grant the U.S. government up to a 50% stake in the combined entity following a public listing. The proposal is framed as a solution to address ongoing concerns surrounding TikTok’s ownership amid national security debates. The initiative also reflects broader attempts to balance regulatory compliance with operational continuity for TikTok in the U.S. market.
What does the updated proposal entail?
The revised plan suggests creating a new American holding company named “NewCo,” in which TikTok’s U.S. operations would be transferred. ByteDance, TikTok’s parent company, would divest its U.S. division to a group of investors, maintaining control of TikTok’s core recommendation algorithm. This provision ensures that ByteDance retains a key technological asset while meeting requirements to appease U.S. policymakers. The planned initial public offering (IPO) of the new entity is expected to value the merged company at a minimum of $300 billion, according to sources familiar with the matter.
Why is this merger being pursued?
The proposal comes as ByteDance faces pressure from U.S. legislation requiring the company to sell its TikTok operations in the country due to concerns over user data security and ties to the Chinese government. The previous deadline of January 19 for ByteDance to divest TikTok passed without a resolution. The merger aims to provide a pathway for TikTok to continue operating in the U.S. while addressing governmental concerns. Perplexity AI’s potential acquisition by “NewCo” has also been floated as part of this new arrangement, provided its investors receive equity in the holding company.
In similar developments last year, debates over TikTok’s future intensified following bipartisan concerns over its data handling practices. At that time, alternative buyers for TikTok’s U.S. operations and other restructuring options were discussed, though none materialized into finalized agreements. These ongoing negotiations highlight the complexity of balancing national security interests with the rights of private companies to operate freely.
The proposal comes alongside broader discussions about social commerce and the growing role of platforms like TikTok in reshaping how brands reach consumers. Sandie Hawkins, former head of TikTok’s eCommerce division, highlighted how such platforms act as digital marketplaces, enhancing brand visibility and directly influencing purchasing decisions. Hawkins noted,
“If you’re not on a marketplace, your brand doesn’t exist to the people shopping there.”
The proposed merger underscores the increasing complexity of regulating global tech firms in a politically charged environment. The inclusion of a significant U.S. government stake may act as a bridge between regulatory demands and business interests, though the success of this arrangement depends on buy-in from both the U.S. administration and ByteDance. Past negotiations between ByteDance and other stakeholders have shown that any resolution will require navigating competing priorities from all parties involved.
Merging TikTok and Perplexity AI under an entity partially controlled by the U.S. government presents a novel approach to the national security dispute. However, this raises critical questions about the long-term viability of such arrangements and their implications for other global tech companies. Policymakers, brands, and users alike will be closely monitoring developments to understand how this model could serve as a precedent for addressing similar conflicts elsewhere.
