Perplexity AI proposes to merge with Tiktok, with US government getting half, source says

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(Reuters) -U.S. search engine startup Perplexity AI has revised the merger proposal it had submitted to TikTok’s Chinese parent ByteDance to create a new entity combining Perplexity and TikTok U.S., a person familiar with the proposal told Reuters on Sunday.

The proposal calls for the U.S. government to own up to 50% of the new company upon a future initial public offering (IPO), the person said.

A Perplexity document shared with ByteDance and new investors proposed the creation of a new U.S. holding company called “NewCo”, the person said.

Under the proposal, ByteDance would sell TikTok U.S. to the investors, which would give TikTok’s existing investors equity in the company. The proposal would also exclude TikTok’s core recommendation algorithm, which ByteDance would keep, the person said.

The U.S. government would own up to half of the new structure once it goes through an IPO of a valuation of at least $300 billion.

Perplexity AI would also offer to be acquired by the holding company if its own investors received a distribution of the NewCo equity, the person said.

CNBC first reported news of the proposal.

TikTok services were restored last week after U.S. President Donald Trump said he would revive the app’s access in the country after returning to power. TikTok shut off its app for U.S. users due to a law that cited national security.

ByteDance and the White House did not immediately respond to a Reuters request for comment. On Saturday, President Donald Trump said he was in talks with multiple people over buying TikTok and would likely have a decision on the popular app’s future in the next 30 days.

Earlier this month, Reuters reported that a source said Perplexity submitted a bid to ByteDance for the startup to merge with TikTok U.S., adding that Perplexity would merge with TikTok and create a new entity by combining the merged company with New Capital Partners.

The source who spoke to Reuters earlier this month said Perplexity AI believes its bid may succeed since the proposal is a merger rather than a sale.

(Reporting by Rishabh Jaiswal and Gnaneshwar Rajan in Bengaluru; Editing by Richard Chang)