Perplexity AI proposes controversial TikTok merger with U.S. government stake

In a move aimed at addressing national security concerns, Perplexity AI has recently submitted a revised merger proposal to ByteDance, the parent company of TikTok, allowing for significant U.S. government ownership in the new structure. Under this proposal, the new entity, referred to as 'NewCo', would be formed by merging Perplexity's operations with those of TikTok's U.S. business. Perplexity envisions that the U.S. government could acquire up to a 50% stake in NewCo upon its forecasted initial public offering (IPO) of at least $300 billion. This plan reflects ongoing efforts by various stakeholders to manage and mitigate perceived security threats associated with TikTok's operations, particularly due to its connections to China, from which ByteDance originates. Furthermore, ByteDance’s existing investors would retain their equity in NewCo, ensuring a favorable outcome for them amidst the ongoing negotiations. However, the merger would require ByteDance to relinquish operational control, particularly its proprietary recommendation algorithm. In exchange, ByteDance would receive a one-time dividend payment from the new entity, financed through investments from mutual third-party capital providers. This unprecedented merging approach reflects altering regulatory landscapes and political pressure, with high-profile figures, including President Donald Trump, heavily involved in discussions surrounding TikTok’s future. Trump's administration had suggested that any American acquisition of TikTok ought to include substantial U.S. oversight. Amidst investor interest from firms like Oracle and Microsoft, Perplexity's proposal also highlights a potential innovative shift in addressing the growing tension around foreign investments in technology firms, particularly those linked to national security. If successful, the proposed structure aims to alleviate fears about data security and user privacy while ensuring that TikTok remains operational in the U.S., albeit under new governance rules that favor limited Chinese involvement.