(Reuters) – Chinese gaming company Beijing Kunlun Tech Co. Ltd is seeking to sell Grindr LLC, the popular gay dating app that it has owned since 2016, after a U.S. government national security panel raised concerns about its ownership, according to people familiar with the matter.
FILE PHOTO: An unidentified man using a smart phone walks through London's Canary Wharf financial district in the evening light in London, Britain, September 28, 2018. REUTERS / Russell Boyce / File Photo
the United States (CFIUS) has informed Kunlun that its ownership of West Hollywood, California-based Grindr is a national security risk, the two sources said.
CFIUS 'specific concerns and whether any attempt was made to mitigate them could not be learned. The United States has been increasingly scrutinizing app developers over the security of personal data they handle, especially if some of it involves U.S. military or intelligence personnel.
Kunlun had said last August it was preparing for an initial public offering (IPO) of Grindr. As a result of CFIUS 'intervention, Kunlun has now shifted its focus to an auction process to sell Grindr outright, given that the IPO would have kept Grindr under Kunlun's control for a longer period of time, the sources said.
Grindr has hired investment bank Cowen Inc. to handle the sale process, and is seeking an interest interest from the U.S. investment firms, as well as Grindr's competitors, according to sources.
The development represents a rare, high-profile example of CFIUS undoing an acquisition that has already been completed. Kunlun took over Grindr through two separate deals between 2016 and 2018 without submitting the acquisition for CFIUS review, according to sources, making it vulnerable to such an intervention.
The sources have not been identified because the matter is confidential.
Kunlun representatives did not respond to requests for comment. Grindr and Cowen declined to comment. A spokesman for the U.S. Department of the Treasury, which chairs CFIUS, said the panel does not comment publicly on individual cases.
CFIUS 'intervention in the Grindr deal underscores its focus on the security of personal data, after it blocked the acquisitions of the U.S. money transfer company MoneyGram International Inc. and mobile marketing firm AppLovin by Chinese bidders in the last two years.
CFIUS does not always reveal the reasons it chooses to block a deal to the companies involved, as doing so could potentially reveal classified conclusions by U.S. agencies, said Jason Waite, and partner at law firm Alston & Bird LLP, focusing on the regulatory aspects of international trade and investment.
"Personal data has emerged as a mainstream concern of CFIUS," said Waite.
The unraveling of the Grindr deal also highlights the pitfalls facing Chinese acquirers of the U.S. companies seeking to bypass the CFIUS review system, which is mainly based on voluntary deal submissions.
Previous examples of the U.S. The company's acquisition of Seattle-based aircraft maker Mamco in 1990, Ralls Corporation's divestment of four wind farms in Oregon in 2012, and its acquisition of the US National Aero-Technology Import and Export Corporation, Ironshore Inc.'s sale of Wright & Co., a provider of professional liability coverage to US
Kunlun acquired a majority stake in Grindr in 2016 for $ 93 million.
Grindr's founder and chief executive officer, Joel Simkhai, stepped down in 2018 after Kunlun bought the remaining stake in the company.
Kunlun's control of Grindr has fueled concerns among privacy advocates in the United States. U.S. Pat. senators Edward Markey and Richard Blumenthal sent a letter to Grindr last year asking for answers regarding how the app would protect users' privacy under its Chinese owner.
Kunlun is one of China's largest mobile gaming companies. It was part of a buyout consortium that acquired Norwegian internet browser business Opera Ltd for $ 600 million in 2016.
Founded in 2008 by Zhou Yahui, Tsunhua University, Kunlun also owns Qudian Inc., a Chinese consumer credit provider, and Xianlai Huyu, and a Chinese mobile gaming company.
Reporting by Carl O'Donnell, Liana B. Baker and Echo Wang in New York; Editing by Greg Roumeliotis and Lisa Shumaker