Revamped Merger Proposal for TikTok and Perplexity AI
In a surprising turn of events, Perplexity AI has revised its merger proposal with TikTok’s parent company, ByteDance. The new proposal suggests creating a new entity, “NewCo,” which would combine Perplexity AI and TikTok U.S., with the U.S. government potentially owning up to 50% of the company after an initial public offering (IPO).
A New Structure Takes Shape
The revised proposal outlines the creation of a new U.S. holding company, where ByteDance would contribute TikTok U.S., minus its core recommendation algorithm, in exchange for equity in the new company. Perplexity AI would offer itself up in exchange for its investors receiving a distribution of NewCo equity. The merger would be funded by new third-party capital providers, which would provide capital for a one-time dividend payment to ByteDance investors and help the new entity grow.
Rise of Perplexity AI
Perplexity AI, a startup competing with OpenAI and Google, has seen its valuation skyrocket from $500 million to $9 billion in just a year. The company’s AI-assisted search technology has been viewed as a key risk to Google’s dominance, as it potentially changes the way consumers access information online.
A Competitive Landscape
The proposed merger comes as OpenAI has introduced its own search engine, SearchGPT, and Google has launched “AI Overviews” in search. The deal would bring more video content to Perplexity AI, making it a more formidable competitor in the AI-assisted search market.
Government Stake and Valuation
Under the revised proposal, the U.S. government could own up to half of the new entity once it IPOs at least $300 billion. The final valuation of the deal is expected to be “well north of $50 billion,” depending on which of ByteDance’s existing shareholders want to remain part of the new entity and which want to cash out.
A Complex Deal
Any potential transaction between Perplexity AI and ByteDance would likely take months to complete. President Donald Trump has temporarily restored TikTok in the U.S. and suggested plans that would involve an American stakeholder purchasing the company and then selling a 50% stake to the U.S. government. The fate of TikTok in the U.S. remains uncertain, with multiple companies and individuals vying to be the one to purchase or merge with the popular social media app.
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