CNBC reports that Perplexity AI has significantly revised its merger proposal with ByteDance, TikTok’s parent company, aiming to establish a new U.S.-based entity called “NewCo.” This revised proposal, shared with ByteDance and potential investors, introduces a novel element: the possibility for the U.S. government to acquire up to a 50% stake in NewCo upon its initial public offering (IPO), which is projected to value at least $300 billion. This move is seen as an attempt to navigate the complex regulatory landscape while offering a path for ByteDance’s existing investors to maintain their stakes.
The proposal, viewed by the publication, outlines ByteDance contributing TikTok U.S., excluding its core recommendation algorithm, in exchange for equity in NewCo. Similarly, Perplexity AI would offer its assets to secure equity for its investors in the new entity. The financial backing for this merger would come from new third-party capital providers, who would fund a one-time dividend to ByteDance investors for simplified governance and support NewCo’s growth.
Perplexity AI, known for its AI-driven search engine, has experienced substantial growth, escalating from a $500 million valuation at the start of 2024 to around $9 billion by year’s end. This growth is attributed to the rising interest in generative AI, although the company has faced scrutiny over plagiarism allegations. The AI search sector, with competitors like OpenAI’s SearchGPT and Google’s “AI Overviews,” represents a potential shift in how information is accessed online, posing a direct challenge to traditional search giants.
The reports notes that the merger proposal’s structure is designed to integrate ByteDance’s investors into NewCo while enhancing Perplexity’s capabilities with video content from TikTok. Despite ByteDance’s public stance against selling TikTok U.S., the merger approach might offer a more palatable solution. The valuation of the deal is expected to exceed $50 billion, though the exact figure would depend on the preferences of ByteDance shareholders regarding participation in NewCo.
The involvement of the U.S. government in the potential IPO of NewCo reflects recent political maneuvers where President Donald Trump has temporarily allowed TikTok to operate in the U.S. while exploring options for an American stakeholder to eventually own a significant share, possibly leading to government involvement. This was acknowledged by TikTok CEO Shou Zi Chew, who thanked Trump for his commitment to finding a solution that would keep TikTok accessible in the U.S.
Perplexity AI is not alone in its interest in TikTok; other notable contenders include tech giants like Microsoft (MSFT) and Oracle (ORCL), and individuals like Elon Musk. With President Trump hinting at a decision on TikTok’s U.S. fate within the next 30 days, the landscape for this high-stakes merger remains fluid, potentially reshaping the social media and AI sectors significantly.
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