Perplexity AI Revises TikTok Merger Proposal, U.S. Government Could Own Up to 50%

On Sunday, Perplexity AI introduced a revised merger proposal aimed at resolving tensions surrounding TikTok’s U.S. operations. The proposal envisions the creation of a new entity by combining Perplexity and TikTok U.S., inclusive of a potential U.S. government stake of up to 50% following an initial public offering (IPO).

The Revised Proposal Details

The updated proposal document, reviewed by CNBC, outlines the establishment of “NewCo,” a new U.S. holding company. According to the document, ByteDance would contribute TikTok U.S., excluding its core recommendation algorithm, in exchange for equity in the new company. Perplexity AI would integrate itself into NewCo, providing its own investors with a portion of the NewCo equity.

Funding for the merger would originate from third-party investors, designed to finance a one-time dividend payment to ByteDance shareholders and to stimulate the growth of the new entity. This restructuring aims to simplify governance and potentially address regulatory concerns.

Background on Perplexity AI

Perplexity AI, an AI search engine startup competing with giants like OpenAI and Google, experienced a remarkable valuation surge in 2024. Starting the year with a roughly $500 million valuation, the company’s value skyrocketed to approximately $9 billion by year-end. This growth was driven by increasing investor interest in generative AI technology and debates surrounding plagiarism accusations.

The Generative AI Landscape

The generative AI space saw significant developments last year. OpenAI launched SearchGPT, sparking a wave of interest in AI-powered search capabilities. Google followed suit with its AI Overviews feature, enhancing search results by providing quick summaries at the top of result pages.

Implications of the Merger Proposal

The proposed new structure is intended to allow ByteDance’s existing investors to retain significant equity stakes. Moreover, it would integrate video content into Perplexity’s offerings. Notably, ByteDance, which has publicly resisted selling TikTok U.S., considers this merger proposal a viable alternative since it involves a combination rather than a straight sale.

Under the revised proposal, the U.S. government could secure up to a 50% stake in NewCo upon its IPO, contingent on the entity reaching a valuation of at least $300 billion. Experts estimate a fair price for TikTok U.S. to be over $50 billion, with the final valuation to be influenced by the involvement of ByteDance shareholders.

Political and Business Dynamics

President Donald Trump’s temporary restoration of TikTok in the U.S. and his expressed willingness to support an American stakeholder acquiring TikTok aligns with Perplexity AI’s bid. ByteDance CEO Shou Zi Chew has publicly acknowledged Trump’s commitment, stating gratitude for his efforts to keep TikTok available in the United States.

Perplexity AI is one of several entities vying for control of TikTok, alongside Microsoft, Oracle, and Elon Musk. Trump has indicated that he must make a decision regarding TikTok’s U.S. future within the next 30 days, adding urgency to these negotiations.

Conclusion

The revised merger proposal from Perplexity AI represents a strategic move to resolve the complex and contentious issue of TikTok U.S. The integration of ByteDance’s U.S. operations with Perplexity AI, coupled with potential U.S. government ownership, could shape the future of digital content regulation and AI innovation.

Stay tuned for further updates on this story as negotiations continue and decisions are made. This development holds significant implications for the tech industry and U.S. policy.

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