Perplexity AI proposes to merge with TikTok to address national security concerns raised by the U.S. government. Perplexity AI, a U.S.-based search engine startup, has revised its merger proposal for TikTok’s U.S. business to ByteDance, TikTok’s Chinese parent company. The plan outlines the creation of a new U.S. holding company, referred to as “NewCo,” which would merge Perplexity and TikTok U.S. In this structure, the U.S. government would own up to 50% of the new entity following a public offering with a valuation of at least $300 billion, a source familiar with the matter revealed.
The revised proposal excludes TikTok’s proprietary recommendation algorithm, which ByteDance would retain. ByteDance’s existing investors would receive equity in the newly formed company, according to the proposal.
ByteDance to Retain Partial Control
As part of its strategy, Perplexity AI proposes to merge with TikTok by creating a U.S.-based holding company called “NewCo.” The plan offers ByteDance the opportunity to contribute TikTok’s U.S. operations to NewCo without fully severing ties with the platform. However, it requires complete U.S. board control over the new entity. ByteDance’s proprietary algorithm, which drives content recommendations on TikTok, would remain separate. This approach ensures that critical technology is disconnected from China, the source added.
Perplexity submitted the initial version of the plan on January 18, before the U.S. TikTok ban took effect. ByteDance has yet to respond. The updated proposal incorporates feedback from the Trump administration, according to the source. It also aligns with previous discussions led by former Treasury Secretary Steven Mnuchin, who suggested diluting Chinese ownership to meet legal requirements.
Trump Optimistic About TikTok Deal
Former U.S. President Donald Trump has expressed confidence in reaching a deal regarding TikTok’s future. Speaking during a flight on Air Force One, Trump said discussions are ongoing with several parties, including investors interested in acquiring TikTok’s operations. He emphasized that any agreement would need to benefit the United States significantly.
The U.S. government’s scrutiny of TikTok stems from concerns about its Chinese ownership and potential risks to national security. Lawmakers and officials have raised alarms about the platform’s data collection practices and its ownership structure. While ByteDance has consistently denied allegations of sharing user data with Chinese authorities, U.S. policymakers insist on the need for stricter control.
Proposed Path Forward
The revised Perplexity proposal aims to address these security concerns while maintaining ByteDance’s involvement. The plan’s emphasis on full U.S. board control and the exclusion of the algorithm reflects efforts to strike a balance between retaining the platform’s operations and safeguarding U.S. interests.
Under the revised plan, Perplexity AI proposes to merge with TikTok while allowing ByteDance to retain partial ownership. ByteDance, TikTok, and the White House have not provided immediate comments on the matter. However, with growing interest from investors and political urgency, a resolution is expected in the coming weeks.
Balancing Security Concerns and Business Interests
Perplexity AI’s plan to exclude TikTok’s core recommendation algorithm from the merger raises significant concerns. While this approach may address fears of Chinese surveillance, it leaves the new entity without the algorithm that is central to TikTok’s user engagement and success. This exclusion could undermine the app’s functionality and its competitive advantage, leading to questions about the long-term viability of the proposed structure.
Moreover, the provision for U.S. government ownership of up to 50% of the new entity after an IPO may seem like a safeguard against foreign influence. However, the lack of voting rights and board representation for the government weakens this safeguard.
