Perplexity AI Revises Merger Proposal with TikTok Parent ByteDance, Offering U.S. Government Stake in New Entity

The TikTok logo is displayed outside a TikTok office on August 27, 2020 in Culver City, California. The Chinese-owned company is reportedly set to announce the sale of U.S. operations of its popular social media app in the coming weeks following threats of a shutdown by the Trump administration
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Perplexity AI has updated its merger proposal with TikTok’s parent company, ByteDance, adding a new dimension to the plan that would allow the U.S. government to own up to 50% of the combined entity after a future IPO. The revised proposal, which was submitted to ByteDance and shared with potential investors, outlines the creation of a new U.S.-based holding company, provisionally named “NewCo.”

The document, which CNBC obtained, details how ByteDance would contribute TikTok U.S., excluding its core recommendation algorithm, into NewCo. In exchange, ByteDance’s investors would receive equity in the new entity. Perplexity AI, the artificial intelligence search startup, would also contribute its assets, with its investors receiving a distribution of NewCo equity.

To fund the merger, the proposal calls for new capital from third-party investors, who would contribute to a “one-time dividend payment” to ByteDance’s shareholders in exchange for simplified governance. The additional capital would also help drive growth for the new entity, according to the proposal.

Perplexity AI’s Rise Amid the Generative AI Boom

Founded as an AI-driven search engine, Perplexity AI is positioned as a competitor to major players like OpenAI and Google. In 2024, the company saw rapid growth, with its valuation rising from around $500 million at the start of the year to approximately $9 billion by year’s end. Much of this growth was driven by the burgeoning interest in generative AI technologies, which are disrupting traditional search models. However, the company has also faced controversy, including plagiarism accusations, which have raised questions about the ethics of AI-assisted search.

As AI-driven search engines, including Perplexity AI, continue to challenge Google’s dominance, industry experts see AI as a major risk to the search giant’s market share. The rise of OpenAI’s ChatGPT, followed by its introduction of SearchGPT, and Google’s own response with “AI Overviews” on search results, highlights the shift in how consumers interact with digital information.

Revised Proposal and Government Stake

The latest iteration of the Perplexity-ByteDance merger would allow the U.S. government to acquire up to 50% of NewCo once the company goes public, potentially valuing the entity at over $300 billion. According to sources familiar with the negotiations, this revised proposal sets the price of the new company “well north of $50 billion.” The final valuation, however, will depend on the preferences of ByteDance’s existing shareholders, who must decide whether to stay involved with the new entity or cash out their stakes.

Although ByteDance has publicly stated that it does not intend to sell TikTok U.S., Perplexity AI’s proposal is structured as a merger rather than a straight acquisition, which may make it more appealing to ByteDance. This distinction could potentially allow ByteDance to retain some level of control over the U.S. operations of TikTok while bringing in a new strategic partner.

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TikTok’s Uncertain Future in the U.S.

The future of TikTok in the U.S. remains uncertain, with the U.S. government continuing to scrutinize the app due to national security concerns. Former President Donald Trump had proposed a solution in which an American entity would purchase TikTok U.S. and sell a 50% stake to the U.S. government, a plan that Perplexity’s proposal seems to align with. In a video posted to TikTok earlier this month, TikTok CEO Shou Zi Chew thanked President Trump for his efforts to work out a solution that would keep TikTok available in the U.S.

Although a resolution remains elusive, Perplexity AI is among several companies and individuals vying for the opportunity to either purchase or merge with TikTok. Other potential suitors include major tech companies like Microsoft and Oracle, as well as high-profile figures such as Elon Musk.

Next Steps and Timeline

While the merger between Perplexity AI and ByteDance would likely take months to complete, the announcement of the revised proposal marks a critical step forward in the ongoing saga of TikTok’s future in the U.S. On January 27, President Trump suggested that a decision on TikTok’s status in the U.S. could be made in the next 30 days, further heightening anticipation and speculation about the next steps.

For now, the proposed merger represents a significant development in the ongoing battle over TikTok’s ownership, with potential implications for the future of AI-driven search, online content, and national security. Perplexity AI’s offer could fundamentally reshape the landscape for TikTok’s operations in the U.S., positioning the company as a major player in both AI and digital media, with possible government oversight as part of the deal.

As talks continue, the involvement of third-party investors, ByteDance’s stakeholders, and the U.S. government will play a crucial role in determining the outcome of this high-stakes merger.

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