Update (1600ET): As we wait for the official word from CFIUS, President Trump said Tuesday that the TikTok-Oracle plan would likely be approved, and that he is a "fan" of Oracle CEO Larry Ellison, known for being one of a small group of tech figures who support the president.
- TRUMP SAYS TIKTOK `VERY CLOSE' TO DEAL
- TRUMP SAYS HE'S A FAN OF ORACLE'S LARRY ELLISON
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Now that President Trump and his trade team have had a couple of days to read all the 'news analysis' slamming the TikTok deal as a nothingburger on par with the Phase 1 trade deal, it looks like they might have some reservations about how things turned out. Or maybe Trump saw some of the headlines and demanded changes, asap.
Whatever the reason, it looks like Oracle, ByteDance, the minority partners like Sequoia, have come together and essentially worked out a new deal, that will place TikTok in a separate joint venture.
Some might say the new structure, leaked to the FT earlier today, is akin to the Chinese "joint venture" often forced upon American companies operating in China. Except that instead of just covering its US business, the joint venture will include the entire business, essentially forming TikTok as a separate corporate entity, with Oracle, ByteDance, Wal-Mart and the other "partners" emerging as shareholders.
The upside for Oracle is that it will now walk away with a stake in an asset that could grow in value. A coterie of Silicon Valley VCs believe it could one day become as valuable as Facebook.
ByteDance will place TikTok’s global business in a new US-headquartered company with Oracle investing as a minority shareholder, said people briefed on a plan presented to US officials to avoid a ban of the popular video app by President Donald Trump.
As part of the proposal, Oracle will have a stake in the whole of TikTok and not just the US operations, while ByteDance, the Chinese group that owns the app used by millions of teenagers, will be the majority shareholder of the new entity.
Other US investors, potentially including the world’s largest retailer Walmart, which had launched a joint bid with Microsoft, would own a minority stake.
People briefed on the discussions stressed that the exact details are still subject to change.
In an interview with CNBC on Monday, Steven Mnuchin, Treasury secretary, said ByteDance had committed to “create TikTok Global as a US-headquartered company”. CNBC reported on Tuesday that the Trump administration could approve the deal as soon as Tuesday afternoon.
Last night, WSJ reported that, as part of the deal, TikTok committed to adding 25,000 US jobs as part of the deal. The paper speculated this might be one way of satisfying President Trump's request that the deal include a payout to the Treasury. As for why Oracle won out over Microsoft, WSJ quoted several analysts who pointed out that Oracle needed a big cloud computing win - and hosting TikTok's video content would be a fantastic coup.
In this way, a company with some close links to the Trump White House and ByteDance - which was caught between Washington and Beijing - were able to work out a mutually beneficial deal. But in the end, working with TikTok could be a major boon for Oracle - at least so far as its share price is concerned.
Working with TikTok would burnish Oracle’s cloud credentials, in part because the video-heavy nature of the app makes it an especially demanding user, said Ray Wang, founder of the Silicon Valley-based advisory firm Constellation Research Inc.
“Oracle is showing it can run the toughest workloads in the public cloud, and that’s what it’s going after,” said Mr. Wang. “Video requires a stable and massively elastic cloud.”
Jefferies analyst Brent Hill put things even more bluntly: the deal with TikTok shows that Oracle is "begging for a cloud win."
"Microsoft, Amazon and Google are taking massive share away from them."
Circling back to the FT report, the paper said the spinoff deal would show the world that ByteDance is serious about "distancing" itself from the CCP. The new entity will be overseen independently, while being managed by ByteDance "at arm's length". Oracle will handle all of the process.
CFIUS has said that its meeting to review the proposal at 1500ET. But according to WSJ, approval of the current plan is virtually assured.
The new TikTok entity will have independent oversight and will be managed at arms-length from ByteDance, said people briefed on the discussions. The Chinese company will continue to collaborate with TikTok globally and will retain control of the powerful algorithm that keeps users engaged by predicting what sort of videos they will enjoy. TikTok’s data across the globe will be processed independently by Oracle, said the people briefed on the discussions.
American data will be managed and stored in the US to address national security concerns there, they added. The current plan is in line with the recommendations made by the Committee on Foreign Investment — a government inter-agency panel that can block deals on national security grounds — before US president Donald Trump threatened to ban TikTok in August. Following Mr Trump’s intervention, China announced new restrictive rules on technology exports, which would have restricted ByteDance from selling its algorithms to a non-Chinese company.
Two people involved in the negotiations said that ByteDance’s offer to create a new entity headquartered in the US as well as the promise to create 20,000 jobs was likely to be welcomed by Mr Trump in an election year, and at a time when millions of Americans have lost their jobs because of the fallout of the coronavirus pandemic. The involvement of Mr Ellison and Oracle chief Safra Catz, some of the few executives in Silicon Valley to openly support the Trump administration, is also likely to play well with the president, people involved in the negotiations said.
So ByteDance is handing President Trump a major election year victory, with promises to create tens of thousands of new jobs - creating more of the "economic growth" that the president has promising to deliver - in exchange, both ByteDance and Oracle get a valuable new US-based asset created virtually out of thin air.
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