Perplexity AI proposes US merger with TikTok, offering US government 50% stake

US-based search engine startup Perplexity AI has revised its merger proposal to ByteDance, the Chinese parent company of TikTok, with plans to create a new entity that merges Perplexity and TikTok US.

According to a source familiar with the matter, the proposal includes a unique proposition – offering the US government ownership of up to 50% of the new company following a future IPO.

As part of the plan, Perplexity AI suggested the establishment of a new US-based holding company called “NewCo.” Under this structure, ByteDance would sell TikTok’s US operations to a group of investors, allowing TikTok’s existing backers to retain equity in the new entity. However, TikTok’s proprietary recommendation algorithm, a core component of its global operations, would remain under ByteDance’s control.

The merger proposal also includes provisions for Perplexity AI to be acquired by the holding company, ensuring its investors receive equity in NewCo. The proposed IPO for NewCo would require a valuation of at least US$300 billion for the US government to secure its stake.

This merger strategy differs from an outright sale, which could make it more appealing to ByteDance and US regulators. Perplexity AI reportedly believes this approach aligns with national security concerns while preserving TikTok’s viability in the US market.

The proposal comes as TikTok’s US operations face ongoing scrutiny over national security risks, primarily related to its ownership by ByteDance. TikTok temporarily suspended its US app operations under a law enacted during former President Donald Trump’s administration, but services resumed last week.

President Trump recently indicated he is in discussions regarding TikTok’s future in the US, with a decision expected within 30 days. ByteDance and the White House have yet to comment on the revised proposal.

Perplexity’s approach follows a reported bid earlier this month, where the startup proposed merging with TikTok US and partnering with New Capital Partners to facilitate the deal. By framing its offer as a merger rather than a sale, Perplexity aims to navigate regulatory concerns and secure buy-in from ByteDance and US stakeholders.

While CNBC first broke the news of Perplexity’s revised proposal, it remains to be seen whether this innovative structure will satisfy national security requirements and win over decision-makers in Washington. With TikTok’s US future hanging in the balance, the outcome of these negotiations could have significant implications for the app’s operations and the broader tech landscape.

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