Perplexity AI revised its merger proposal submitted to TikTok parent ByteDance on Sunday. The updated proposal includes the creation of a new entity merging Perplexity and TikTok U.S., with the U.S. government potentially owning up to 50% of the new company after an IPO, as reported by CNBC.
A proposal document seen by CNBC outlined the establishment of a new U.S. holding company named “NewCo.” The document suggests ByteDance contribute TikTok U.S. (excluding its core recommendation algorithm) in exchange for existing investors receiving equity in the new company. Perplexity AI would also be part of the merger, with its investors receiving a distribution of NewCo equity.
Funding for the merger would be sourced from new third-party capital providers, as per the proposal document. This capital would facilitate a one-time dividend payment to ByteDance investors and support the growth of the new entity.
Perplexity AI, a search engine startup specializing in artificial intelligence, began 2024 with a valuation of around $500 million, which surged to approximately $9 billion by the year-end. The company attracted investor interest amid the generative AI trend but faced controversy over plagiarism allegations. Investors see AI-powered search as a potential disruptor to Google’s dominance in information access online.
The proposed merger structure aims to allow ByteDance’s current investors to retain their equity stakes while integrating more video content into Perplexity, according to a source familiar with the matter. Despite ByteDance’s public stance against selling TikTok U.S., Perplexity AI sees an opportunity for a merger rather than a sale, making its bid appealing.
The revised proposal suggests that the U.S. government could own up to 50% of the new entity post-IPO, with an estimated valuation exceeding $300 billion. The final valuation will depend on ByteDance’s shareholders’ decisions to stay invested or cash out.
While a potential deal between Perplexity AI and ByteDance may take months to finalize, President Trump has temporarily allowed TikTok to operate in the U.S. He has hinted at plans involving an American entity acquiring TikTok and selling a 50% stake to the U.S. government. Various companies, including Microsoft, Oracle, and possibly Elon Musk, are reportedly interested in acquiring or merging with TikTok. President Trump aims to make a decision on the app’s future in the U.S. within the next 30 days.
