Walmart is teaming up with Microsoft on TikTok bid

Walmart said it’s teaming up with Microsoft in a bid for TikTok.

The retail giant confirmed to CNBC that it’s interested in buying the popular short-form video application.

Walmart shares are up nearly 5% on the news.

TikTok’s Beijing-based parent company, ByteDance, is nearing an agreement to sell its U.S., Canadian, Australian and New Zealand operations in a deal that’s likely to be in the $20 billion to $30 billion range, sources say. It has not yet chosen a buyer, but could announce the deal in coming days, the sources say.

With Walmart’s confirmation, it joins several others trying to acquire the tech company, including Oracle.

Walmart is pursuing the acquisition at a time when it’s trying to better compete with Amazon. It plans to launch a membership program, called Walmart+, soon. The subscription-based service is the retailer’s answer to Amazon Prime, which includes original TV shows and movies.

In a statement, the big-box retailer said TikTok’s integration of e-commerce and advertising “is a clear benefit to creators and users in those markets.” It did not say how it would use TikTok or whether it would be part of Walmart+.

“We believe a potential relationship with TikTok US in partnership with Microsoft could add this key functionality and provide Walmart with an important way for us to reach and serve omnichannel customers as well as grow our third-party marketplace and advertising businesses,” it said. “We are confident that a Walmart and Microsoft partnership would meet both the expectations of US TikTok users while satisfying the concerns of US government regulators.”

The deal, if approved, would give Walmart and Microsoft access to hundreds of millions of consumers that could buy their products or become a lucrative audience for ads. In a filing this week, TikTok said it has nearly 100 million monthly active U.S. users. That’s up nearly 800% from Jan. 2018.

Daniel Ives, managing director and technology analyst at Wedbush Securities, described TikTok as “a huge shot in the arm” for Walmart’s e-commerce business.

“When you think right now about going up against the 800-pound gorilla, Amazon, obviously they’ve been behind the eight-ball,” he said. “But Walmart could use this as a golden opportunity to partner with Microsoft and monetize the TikTok base, which could start to rival Instagram in the next few years just given its global presence.”

He gave the bid a 85% to 90% chance of going through.

On Walmart’s recent earnings call, CEO Doug McMillon did not say when Walmart+ would launch or which perks it would include, but he acknowledged the buzz around it. He said the membership program will speed up deliveries for customers through curbside pickup and delivery, strengthen relationships with them and collect valuable data.

Walmart had previously worked on a deal with SoftBank, but that bid faced resistance from the U.S. government because it did not include a cloud technology backbone component, people familiar with the matter said.

With Microsoft involved, Walmart could be better positioned. Two years ago, Walmart announced a five-year cloud deal with Microsoft. The retailer adopted Microsoft’s Azure cloud infrastructure and a bundle that includes the Office 365 productivity applications. 

TikTok was pushed to look for a buyer after U.S. Secretary of State Mike Pompeo said in July that he was considering banning TikTok and other Chinese applications for security reasons. The U.S. government said it’s concerned the Chinese government can access user data collected by TikTok.

The Pentagon banned TikTok from government-issued mobile devices in January. The U.S. House of Representatives and U.S. Senate followed suit this summer. President Donald Trump joined calls for the app’s ban. His presidential campaign urged people with ads on Facebook and Instagram to sign a petition.

Trump signed an executive order on Aug. 6, alleging China may potentially have access to “Americans’ personal and proprietary information” through data collected by TikTok. TikTok has repeatedly denied those allegations. It says its user data is stored in the U.S., with a backup in Singapore, and its data centers are not located in China.

On Thursday, TikTok CEO Kevin Mayer quit the company, citing political pressure and the forced sale. He announced his departure just months after starting in the role.

“I understand that the role that I signed up for—including running TikTok globally—will look very different as a result of the US Administration’s action to push for a sell off of the US business,” he said in the memo obtained by CNBC.

— CNBC’s Alex Sherman and Jordan Novet contributed to this story.

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