Apr 27, 2024 - Business

TikTok resolution may use Grindr's path as precedent

Illustration of a hand touching a phone with a dollar bill on the screen

Illustration: Sarah Grillo/Axios

When a group of investors bought LGBTQ+ dating app Grindr from Beijing Kunlun Tech in 2020, the key to getting U.S. regulatory blessing was to sever connections to China and establish full American decision-making over the company.

Why it matters: ByteDance doesn't seem keen on selling off TikTok, and reportedly prefers to shut down the app. But Grindr still offers a prominent example of what could happen if ByteDance goes along with divestiture.

Flashback: The Committee on Foreign Investment in the U.S. (CFIUS) mandated in 2019 that Kunlun sell the app after reports that some of its Beijing-based engineers had access to U.S. user data, including private messages and HIV statuses.

  • Kunlun sold the business the following year to San Vicente Acquisition for about $600 million. The company went public by merging with a blank check company in 2022.

The big picture: Given CFIUS' clear focus on Chinese access to any data, the investors' approach was to keep things as simple as possible, be transparent and set up whatever structure made the committee comfortable, according to a source familiar with the transaction.

  • That included having only individuals as investors, rather than institutions, to simplify the due diligence.
  • A potential Brazilian investor elicited no concern from CFIUS, but Fortress' later involvement as the group's lender sparked questions. "They were trying to find every potential angle and connection into China," explains the source.
  • The new owners also signed a new national security agreement with CFIUS relating to data storage, monitoring and the like.

Zoom in: The new management team, which CFIUS also vetted, comprised three American tech execs.

  • They picked other well-established American execs to serve as their representative on the board and as a board observer, according to a source familiar with the management's thinking.
  • The company had already moved its engineering operations from China to Taiwan, and the new execs let go of most of those employees when they took over. Only about a dozen remained at the company for a couple of years after that.

Yes, but: So far, ByteDance has denied it has any plans to sell TikTok.

  • This could be part of its political strategy, because millions of Americans — voters and elected officials' constituents alike — would be upset if the app were to shut down. Even President Biden's re-election campaign isn't getting off the app, for now.
  • It's also planning to challenge the law in court. Donald Trump early last month flip-flopped and came out against a ban.

The bottom line: There's a way, but the bigger obstacle is finding the will.

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