Perplexity AI on Sunday revised the merger proposal it had submitted to TikTok parent ByteDance. The proposal, which would create a new entity combining Perplexity and TikTok U.S., would now also allow for the U.S. government to own up to 50% of the new company upon a future IPO, CNBC has learned.
A proposal document viewed by CNBC, which was shared with ByteDance and prospective new investors, detailed the creation of a new U.S. holding company, “NewCo.”
The document proposes ByteDance contribute TikTok U.S., minus its core recommendation algorithm, in exchange for the company’s existing investors receiving equity in the new company. Perplexity AI would offer itself up in exchange for its own investors receiving a distribution of the NewCo equity.
Money for the merger would come from “new third-party capital provider(s) (to be mutually agreed upon),” per the proposal document, which would provide capital for a “one-time dividend payment to ByteDance investors in exchange for simplified governance” and to help the new entity grow.
Perplexity AI, the artificial intelligence search engine startup competing with OpenAI and Google, started 2024 with a roughly $500 million valuation and ended the year with a valuation of about $9 billion, after attracting increasing investor interest amid the generative AI boom — as well as controversy over plagiarism accusations. Investors have viewed AI-assisted search as one of Google’s key risks, as it potentially changes the way consumers access information online.
Last year, OpenAI, which started the generative AI craze in late 2022 with ChatGPT, introduced a search engine called SearchGPT. Google later launched “AI Overviews” in search, allowing users to see a quick summary of answers at the top of results.
The proposed new structure would allow for most of ByteDance’s existing investors to retain their equity stakes and would bring more video to Perplexity, a source familiar with the situation told CNBC earlier this month. And although ByteDance has publicly implied it will not sell TikTok U.S., that’s part of why Perplexity AI believes it has a shot with its bid — since the deal would be a merger rather than a sale, the source added.
Under the revised proposal, the U.S. government could own up to half of the new structure once it IPOs at least $300 billion, according to the source.
A fair price is “well north of $50 billion” but the final number attached to the proposal will be decided, in part, by which of ByteDance’s existing shareholders want to remain part of the new entity and which want to cash out, according to the source.
Though any potential transaction between Perplexity AI and ByteDance would likely take months to complete, President Donald Trump has so far 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. In a video posted to TikTok earlier this month, CEO Shou Zi Chew said, “I want to thank President Trump for his commitment to work with us to find a solution that keeps TikTok available in the United States.”
Perplexity is one of multiple companies and individuals vying to be the one to purchase or merge with TikTok, which reportedly include Microsoft, Oracle and potentially Elon Musk. On Saturday, President Trump said he would likely have a decision on the app’s future in the U.S. in the next 30 days.