Caixin
Sep 15, 2020 06:15 AM
BUSINESS & TECH

Update: TikTok to Partner With Oracle, Walmart as Microsoft Deal Collapses

China’s popular music video app TikTok entered a business partnership with Oracle Corp. in hopes of satisfying the Trump administration's national security concerns and avoid a business ban, diverting a plan to sell its U.S. operations as demanded by President Donald Trump.

Oracle “will serve as the trusted technology provider” in the deal, the American cloud services giant said Monday in a statement. The partnership is part of a proposal that TikTok owner ByteDance submitted to the Treasury Department over the weekend, Oracle said.

TikTok will also partner with retail giant Walmart in e-commerce, Caixin learned from sources close to ByteDance management. It is unclear how the ownership of TikTok will be restructured under the partnerships. Walmart didn't comment.

Trump set a mid-September deadline for TikTok to sell its U.S. assets or face a business ban, according to an executive order signed in August. It's not clear whether TikTok's partnership with Oracle would allow it to avoid the ban.

U.S. Treasury Secretary Steven Mnuchin confirmed Monday that the administration received a proposal over the weekend from TikTok that includes Oracle as the app’s “trusted technology partner.” The Oracle proposal contains a commitment to make TikTok global a U.S. headquartered company with 20,000 new jobs, Mnuchin said.

Mnuchin told CNBC that he would review the proposal this week to see whether it is “secure” and make a recommendation to the president.

“We need to make sure that the code is, one, secure, Americans’ data is secure, phones are secure, and we’ll be looking to have discussions with Oracle over the next few days with our technical team,” Mnuchin said.

Oracle’s stock surged 13% in pre-market trading Monday.

A person close to the development said a partnership with Oracle doesn’t involve the asset sales ordered by Trump or any transfer of TikTok’s key technology that would be subject to Chinese regulatory approval.

Oracle will help TikTok localize its data processing and offer security solutions to ensure business compliance, a person close to ByteDance said. The proposal also includes commitments related to job creation, headquarters and taxes, he said.

Microsoft, which was working with Walmart Inc. to bid for TikTok assets, said during the weekend that the deal collapsed. Previous reports said the assets pending sale could fetch as much as $20 billion.

“ByteDance let us know today they would not be selling TikTok’s U.S. operations to Microsoft,” Microsoft said in a statement posted Sunday on its blog. “We are confident our proposal would have been good for TikTok’s users while protecting national security interests.”

Microsoft said that its bid “would have made significant changes to ensure the service met the highest standards for security, privacy, online safety and combatting disinformation.”

TikTok is one of China’s first major successful internet exports, with large audiences in the U.S. and India, among other places. It has been in the news nearly nonstop for much of this year after U.S. politicians expressed concerns that the app’s huge pools of data on U.S. users could be given to the Chinese government because of ByteDance’s status as a Chinese company. India expressed similar concerns and banned the app there along with more than 50 others from China in late June. 

ByteDance has taken numerous steps to try to ease those concerns. It repeatedly stated it doesn’t allow any government to access its user data, including the Chinese government. It also set up two transparency centers in the U.S. to showcase how it manages user data.

But Trump wasn’t convinced and in August gave the Chinese company 45 days to finalize a deal to sell TikTok’s U.S. operations or risk having the service shut down. That deadline would mean TikTok must announce a sale by Tuesday in the U.S. The turbulence at the company led its CEO and former Disney executive Kevin Mayer to resign in late August, less than three months after he assumed the job.

Any sale could also be complicated by Beijing’s recent update to its policy requiring government approval of deals involving the export of Chinese technology. Following that development at the end of last month, many thought ByteDance would need Beijing’s approval to sell or license the technology that powers TikTok to a foreigner buyer. 

The TikTok app at the center of the storm is the international edition of ByteDance’s Douyin, which is one of the most popular music apps in China’s domestic market. ByteDance acquired the foundation of TikTok when it purchased another lip-syncing app called Musical.ly for around $1 billion in 2017. It later phased out the Musical.ly brand and replaced it with TikTok, which has become wildly popular among U.S. youth.

But the U.S. later decided the Musical.ly acquisition should have been submitted for approval to the Committee on Foreign Investment in the United States (CFIUS), a group of officials from several government agencies that reviews deals for national security concerns. After determining it had jurisdiction over the earlier deal, CFIUS launched its own review late last year. Its findings were thought to be a driving factor behind Trump’s decision to force ByteDance to sell TikTok’s U.S. operations.

Contact reporter Yang Ge (geyang@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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