Caixin
Sep 20, 2020 10:30 AM
BUSINESS & TECH

Trump Approves Oracle Deal For U.S. TikTok

Photo: Bloomberg
Photo: Bloomberg

(Bloomberg) — Donald Trump approved Oracle Corp.’s bid for the U.S. operations of TikTok “in concept,” a deal forced by the president’s orders last month declaring the popular video-sharing app a national security threat.

“I have given the deal my blessing. If they get it done that’s great. If they don’t, that’s OK too, ” Trump told reporters Saturday as he left the White House for a campaign rally in Fayetteville, N.C. “I approved the deal in concept.”

The new company, which will be called TikTok Global, has agreed to donate $5 billion to an education fund, which Trump said would satisfy his demand that the government receive a payment from the deal. “They’re going to be setting up a very large fund,” he said. “That’s their contribution that I’ve been asking for.”

Under terms of the deal, Oracle Corp. and Walmart Inc. will control 20% of the new TikTok Global, according to a person familiar with the matter. Sequoia Capital and General Atlantic, already investors in TikTok’s Chinese owner ByteDance Ltd., are also expected to take stakes in the new company, the person said.

TikTok said in a statement that it was “pleased that the proposal by TikTok, Oracle, and Walmart will resolve the security concerns of the U.S. administration and settle questions around TikTok’s future in the U.S.”

The company confirmed Oracle will host all its U.S. data and secure its computer systems. TikTok said it is working with Walmart on a commercial partnership and it, along with Oracle, will take part in a TikTok Global pre-IPO financing round in which they can take as much as a 20% cumulative stake in the company.

The deal was forced by a pair of bans Trump issued in August citing national concerns over TikTok’s Chinese ownership. The Commerce Department on Saturday delayed by a week a ban that would have forced Apple Inc. and Alphabet Inc.’s Google to pull the TikTok video app from their U.S. app stores on Sunday.

TikTok Global will likely be headquartered in Texas and will hire “at least” 25,000 people, Trump said. TikTok will need to hire thousands of content moderators, engineers, and marketing staff that were previously located in China and around the world.

To sweeten the deal for Trump, TikTok promised to hire an additional 15,000 jobs more than the 10,000 positions the company already pledged to fill earlier this year. It’s unclear if there’s a timeline to achieve that target, or any guarantees that it will follow through.

Facebook Inc., the largest U.S. social media company, employed about 45,000 people in 2019, while Twitter Inc. employed only 4,900, according to data compiled by Bloomberg.

Trump is ramping up pressure on Chinese-owned apps in the weeks before the Nov. 3 presidential elections, citing national security concerns about the data U.S. citizens provide to them and the potential for Beijing to use them for spying. The president is trailing his opponent Joe Biden in polls and has sought to portray himself as tougher on Beijing than the Democrat.

While the Chinese government must now sign off on the transaction for it to go forward, as of earlier this week, ByteDance was growing increasingly confident that the proposal would pass muster with Chinese regulators, people familiar with the matter told Bloomberg.

Under the terms of the agreement reached early in the week, ByteDance would retain a majority of TikTok’s assets and control over the algorithm, with Oracle and other U.S. investors taking minority stakes.

Trump seemed to contradict that on Saturday. “It will have nothing to do with China, it’ll be totally secure, that’ll be part of the deal,” he said. “All of the control is Walmart and Oracle, two great American companies.”

Trump spoke with Oracle Chairman Larry Ellison and Walmart Chief Executive Officer Doug McMillon on Friday, telling them he still expected the U.S. government to receive a cash payment as part of the transaction, according to people familiar with the matter. They agreed to the educational donation as a way to satisfy Trump’s demand, one of the people said.

The new U.S. company intends to hold an initial public offering in about a year, according to people familiar with the matter. TikTok plans to use the proceeds from the listing for the $5 billion educational grant, one of the people said.

Oracle will get full access to review TikTok’s source code and updates to make sure there are no back doors used by the company’s Chinese parent to gather data or to spy on the video-sharing app’s 100 million American users, according to people familiar with the matter.

The deal came together last weekend, the result of high-level negotiations between ByteDance, Oracle and top Trump administration officials after ByteDance rejected a bid from Microsoft Corp. and Walmart to buy the U.S. TikTok service outright.

Beijing has signaled it would greenlight a deal as long as ByteDance doesn’t have to transfer the artificial intelligence algorithms that drive TikTok’s service, Bloomberg has reported.

The Treasury Department said the deal is subject to a security agreement that requires approval by the Committee on Foreign Investment in the U.S., or CFIUS. The term sheet that’s been negotiated between Cfius and the companies will now have to be formalized in a document that details the mechanics for implementing the terms of the deal.

That document would likely include requirements related to the establishment of the new company, arrangements governing its relationship with ByteDance, whether an IPO is part of the deal, whether ByteDance will have to divest its entire stake in the IPO and what would happen if for some reason the IPO doesn’t occur, said Aimen Mir, a lawyer at Freshfields Bruckhaus Deringer LLP and a former deputy assistant secretary for investment security at Treasury.

Contact editor Yang Ge (geyang@caixin.com)

 


You've accessed an article available only to subscribers
VIEW OPTIONS
Share this article
Open WeChat and scan the QR code