With Ban Pending, Should Microsoft or Twitter Buy TikTok?

What we’ve characterized as “unprecedented times” over the last six months could soon bring about an unprecedented business acquisition.

According to Lecturer Peter Cohan, who teaches Strategic Decision Making at Babson College, Microsoft’s or Twitter’s potential purchase of TikTok approaches uncharted territory. President Trump has imposed a ban on the Chinese-owned app beginning September 20, claiming a national security threat given the app’s access to American user data.

The political fragment of this possible acquisition presents an obstacle to Microsoft and Twitter that Cohan said is not worth pursuing.

“The advice that I have is don’t do it, don’t get involved,” he said. “You’re turning yourself into a political football.”

The Four Tests

This advice is the same he’d share with his students.

Though an acquisition could prevent a U.S. ban on TikTok, Cohan questions whether Microsoft or Twitter have the digital advertising abilities needed following an acquisition. In his course, he advises such deals pass four tests.

• Is the industry attractive?
• Will the combined companies be better off?
• Is the deal price less than the present value of the target’s future cash flows?
• Can you integrate the firms together?

Cohan also theorized the cost of a deal could be up to $15 billion, and cited Microsoft’s previous purchase of LinkedIn as one that didn’t maximize potential.

A fifth question unique to this acquisition may include a political risk, considering Microsoft’s role in the ongoing trade war between the U.S. and China.

Even though the U.S. market represents a large part of TikTok’s audience at about 10%, Cohan said setting a deadline could negatively affect discussions, as power is stripped from business parties in the negotiation.

“It would be bad for Microsoft, it would be bad for Twitter,” Cohan said. “It’s hard enough to make an acquisition work, but when you add that into it, you’re fooling yourself if you think you can master that dynamic.”

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Tagged Commentary, Faculty, Research

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