China's ByteDance told engineers of its popular short-video app TikTok this week to make contingencies should it need to shut down its US operations, even as it works toward divesting them, people familiar with the matter said on Thursday.
ByteDance has been ordered by President Donald Trump to divest TikTok in the United States, amid security concerns over the personal data it handles. Microsoft Corp and Oracle Corp are among US companies vying to acquire the assets of TikTok, which claims about 100 million monthly active users in the US ByteDance is expected to pick a bidder to enter into exclusive talks as early as Friday, according to the sources.
Trump issued an executive order on Aug. 6 that would ban transactions with TikTok and its Chinese parent in 45 days. While TikTok has filed a lawsuit challenging the order, it is preparing for the possibility that it will have to shut down if it has not reached a deal with an acquirer by mid-September, the sources said. It hopes that any shutdown would be temporary, the sources added.
A sale would have to be greenlighted by both the United States and Chinese governments. The shutdown contingencies are also aimed at preparing TikTok's global operations for the possibility that one of the two countries blocks any deal, the sources said.
ByteDance told TikTok engineers in a memo this week to draw up plans for shutting down the app in the United States, the sources said.
ByteDance is also making separate plans for TikTok US employees and vendors to be compensated in the event of a shutdown, one of the sources added. TikTok has already implemented a hiring freeze in the US for most open positions because of the uncertainty, bringing in only 5% of the staff it planned to recruit, according to the source.
ByteDance views the shutdown preparations as a back-up plan, and is working toward a deal that would keep TikTok operating in the United States without interruption, the sources said.
The sources requested anonymity as the shutdown preparations are confidential.
"We are confident that we will reach a resolution that ensures TikTok is here for the long run for the millions of Americans who come to the platform for entertainment, self-expression, and connection," a TikTok spokesman said in a statement. "As any responsible company would do, we are simultaneously developing plans to try to ensure that our US employees continue to get paid in any outcome."
ByteDance did not immediately respond to a request for comment.
While TikTok is best known for its anodyne videos of people dancing that go viral among teenagers, US officials have expressed concerns that information on users could be passed on to China's communist government. In addition to cutting off access for TikTok's US users, shutting down TikTok could deprive "influencers," who have built large followings on the app, from income they receive from advertisers for promoting products and services.
While shutting down TikTok in the United States would prevent new users from downloading the app, it is not clear whether those who have already downloaded the app in the United States would lose access.
ByteDance has been in talks to sell TikTok's North American, Australian and New Zealand operations, which could be worth $25 billion to $30 billion, since the beginning of this month.
Walmart Inc said on Thursday it was joining Microsoft in its bid for TikTok's US assets, revealing its plans hours after the app's recently named chief executive, Kevin Mayer, said he would step down.
Oracle, whose Chairman Larry Ellison is one of the technology world's few supporters of Trump, has partnered with some of ByteDance's investors, including General Atlantic and Sequoia, on its bid for the TikTok assets.