Meta is planning to unwind its acquisition of AI startup Manus after the Chinese government banned the transaction on Monday on national security grounds, according to a new report by The Wall Street Journal, citing sources familiar with the matter.
The Mark Zuckerberg-led company had bought last year for $2.5 billion and then worked on integrating the company’s technology into its systems. Any attempt to reverse the deal is expected to be complex, requiring the company to disentangle operations, data, and technology that have already been combined.
Meanwhile, a Bloomberg report had noted that Manus staff have been integrated into Meta, funds have been dispersed, and the startup’s leadership has joined the company’s AI division. Manus employees have also already transitioned to Meta’s Singapore offices, while former stakeholders like , ZhenFund, and HongShan have also collected their payouts.
Meta’s plan to undo Manus acquisition:
The WSJ report notes that several former Manus investors in Asia, including Tencent, HSG, and ZhenFund, plan to cooperate if goes ahead with its plan to unwind the deal.
One of the major complications is that Manus’s investors, including US-based venture capital firm Benchmark, have already received returns from the deal.
China’s deadline for Meta:
Reportedly, Chinese authorities have handed Meta and Manus a preliminary deadline of several weeks to completely unwind the acquisition and restore the startup’s Chinese assets to their original state, which requires stripping any previously transferred data or technology out of Meta’s ecosystem.
If the two companies fail to fully rescind the deal, Beijing is reportedly considering imposing further penalties on both Meta and Manus.
Manus founders in crosshairs:
Reportedly, Meta’s acquisition of Manus had angered Beijing, which began reviewing it shortly afterwards. In March, Manus AI co-founders Xiao Hong and Ji Yichao were called in by Chinese authorities to discuss the acquisition. They were subsequently barred from leaving the country pending an investigation.
Prior to Monday’s official ban, Meta had reportedly discussed letting the founders depart the company as a potential concession to appease Beijing. Meta has now acknowledged that it will have to let Xiao and Ji go as part of the formal unwinding process.
Why China believes it can ban the merger?
Engineers at Beijing Butterfly Effect Technology, which Xiao founded in 2022, created early versions of Manus. Subsequently, a Singapore-based entity, also called Butterfly Effect, took over operation of the AI agent tool in markets outside China.
then moved most of its China-based employees to Singapore last year after receiving investment from Benchmark.
Chinese authorities believe they have the authority to demand the deal be unwound because Beijing Butterfly Effect Technology remains a Chinese company. Chinese law dictates that any foreign investments that may carry a national-security risk could be subject to review by authorities.