Perplexity AI's Revised TikTok Merger Proposal: A 50% Government Stake

Perplexity AI, a San Francisco-based artificial intelligence startup, has revised its merger proposal with TikTok's U.S. business, offering the U.S. government a 50% stake in the new entity. This revised proposal comes as several investors, including President Donald Trump, express interest in a deal that could be finalized within 30 days.

The new proposal, submitted last week, allows the U.S. government to own up to half of the new structure once it makes an initial public offering (IPO) of at least $300 billion. The government's stake would not have voting power and would not include a seat on the new company's board. ByteDance, TikTok's parent company, would not have to completely cut ties with TikTok but would have to allow "full U.S. board control."

Under the proposal, ByteDance would contribute TikTok's U.S. business without the proprietary algorithm that fuels what users see on the app. This mirrors a strategy discussed by former Treasury Secretary Steven Mnuchin, who suggested that a new investor in TikTok could simply "dilute down" the Chinese ownership and satisfy the law.

The Perplexity proposal comes as TikTok faces a potential ban in the United States due to concerns about its ownership structure representing a security risk. The Biden administration has argued in court that it was too much of a risk to allow a Chinese company to control the algorithm that fuels what people see on the app. Officials have also raised concerns about user data collected on the platform.

However, the U.S. has not provided public evidence of TikTok handing user data to Chinese authorities or allowing them to tinker with its algorithm. The revised proposal from Perplexity AI could address these concerns by giving the U.S. government a significant stake in the merged entity, allowing it to have a say in the company's operations and ensure the security of the technology and data.

The proposed 50% government stake in the merged entity has significant implications for the valuation and future prospects of both Perplexity AI and TikTok U.S. If the merged entity IPOs at least $300 billion, the U.S. government could own up to $150 billion worth of the new company. This would significantly increase the valuation of Perplexity AI, which ended 2024 with a valuation of about $9 billion. For TikTok U.S., the valuation would also increase significantly, as ByteDance's existing investors would receive equity in the new company.

The government's stake could provide significant financial and political support, enhancing the company's future prospects. However, it also comes with potential risks, such as government influence over the company's decisions and potential conflicts of interest. The merged entity would need to navigate potential regulatory challenges and public scrutiny, as the government's stake could raise concerns about government overreach or interference in private business.

In conclusion, Perplexity AI's revised merger proposal, offering the U.S. government a 50% stake in the new entity, could address concerns about TikTok's ownership structure and provide significant financial and political support for the merged entity. However, it also comes with potential risks and challenges that the merged entity would need to navigate. The U.S. government's decision to own a significant stake in the merged entity would likely be influenced by a careful consideration of these potential risks and benefits.