ByteDance picks Oracle as its partner in an attempt to save TikTok US

TikTok

Oracle has announced that it might team up with ByteDance in order to maintain TikTok’s ability to continue operating in the United States, beating Microsoft in a deal structured as a partnership rather than an outright sale.

ByteDance, TikTok’s Beijing-based owner, had been in talks to divest the US business of its enormously popular short-video app to Oracle or Microsoft later U.S. President Donald Trump purchased the sale last month and said he might otherwise shut it down.

While TikTok is best known for dancing videos which go viral among teenagers, US officials are concerned user information could be passed into China’s Communist Party government. TikTok, that has as many as 100 million American users, has stated it would never discuss such information with the Chinese government.

Sale negotiations were upended when China upgraded its export control principles every month, offering it a say over the transport of TikTok’s algorithm into a foreign purchaser. Reuters reported that China would rather see TikTok shut down at the United States than permit a forced sale.

“Trusted technology provider”

Oracle said it was a part of a proposal filed by ByteDance into the US Treasury Department over the weekend where Oracle would function as TikTok’s “trusted technology provider.” Oracle shares were up 6.3%.

Under ByteDance’s latest proposal, Oracle would assume management of TikTok’s US consumer data, sources told journalists at our partner news agency Reuters on Sunday. Oracle can also be negotiating taking a bet in TikTok’s US operations, the sources added. The TikTok user data is now stored in Alphabet Inc’s cloud, using a copy in Singapore.

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A number of ByteDance’s leading investors, such as General Atlantic and Sequoia, are also awarded minority stakes in those operations, one of the sources said.

PRECEDENT

It’s unclear whether Trump, who desires a US tech company to possess most of TikTok in the US, will approve the deal. US Treasury Secretary Steven Mnuchin told CNBC on Monday that the administration would review this week.

“I will just say from our standpoint, we’ll need to make sure that the code is, one, secure, Americans’ information is protected, that the phones are secure and we are going to be looking to have discussions with Oracle over the next few days together with our specialised teams,” he said.

Mnuchin said the deadline to approve a deal was Sept. 20 and that the current proposal included a commitment to create a US-headquartered company with 20,000 new jobs.

The Committee on Foreign Investment in the United States (CFIUS), which reviews deals for national security risk, is overseeing the ByteDance-Oracle talks, and Mnuchin said there would also be a separate national security review by the Trump administration.

“User data security and assurances around how the organisation’s algorithms drive content to US consumers are considerate components of a substantive solution, but if they could change political outcomes is a much more difficult question,” said regulatory lawyer John Kabealo, who is not involved in the talks.

ByteDance plans to argue that CFIUS’ acceptance two decades ago of China Oceanwide Holdings Group’s buy of US insurer Genworth Financial Inc provides a precedent for its proposition by Oracle, the sources said.

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In that deal, China Oceanwide consented to use an American-based, third-party service to manage Genworth’s US policyholder data. ByteDance will argue a similar arrangement with Oracle can safeguard TikTok’s US consumer data, the sources said.

“We can confirm that we’ve submitted a proposal to the Treasury Department which we believe would resolve the Administration’s security concerns,” TikTok said in a statement, without revealing any further information.

ByteDance and Oracle didn’t respond to requests for comment.

China’s foreign ministry spokesman Wang Wenbin declined to comment on Monday when asked in a press conference concerning the TikTok bargain, but stated TikTok was being “encircled” and “coerced” by the Trump administration in the United States into a transaction.

“We urge the US government to provide an open, fair, just and non-discriminatory environment for foreign firms operating and investing in the United States,” he said.

ELLISON AND TRUMP

Oracle’s chairman Larry Ellison is one of the tech sectors key Trump supporters. His company has significant technological prowess in handling and safeguarding data, but no social networking expertise as its own clientele comprises companies, rather than customers.

On Sunday, Microsoft said it was informed by ByteDance the Chinese firm would not be selling it TikTok’s US operations. Walmart, which had joined Microsoft’s bid, said it was still interested in investing, and that it would speak further with ByteDance and other parties.

As Sino-US relations deteriorate over commerce, Hong Kong’s autonomy, cyber security and also the spread of the coronavirus, TikTok has emerged as a flashpoint.

As many as 40% of Americans back Trump’s threat to ban TikTok if it is not sold to some US business entity, a Reuters/Ipsos national poll found last month. One of Republicans – Trump’s celebration – 69% stated they affirmed the arrangement, though only 32% expressed familiarity with the app.

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The White House has stepped up attempts to purge what it deems “untrusted” Chinese programs from US networks. Beyond TikTok, Trump has also issued an order prohibiting transactions with Tencent Holding Ltd’s messenger app WeChat.

Before this year, Chinese gaming company Beijing Kunlun Tech sold homosexual dating app Grindr, purchased in 2016, for $620 million following CFIUS ordered its divestment.

ByteDance acquired Shanghai-based video app Musical.ly – whose consumer base was mostly American – for $1 billion in 2017 without needing CFIUS acceptance, relaunching it since TikTok the subsequent year. Reuters reported last year that CFIUS was investigating TikTok.

The team at Platform Executive hope you have enjoyed this news article. Initial reporting via our official content partners at Thomson Reuters. Reporting by Echo Wang and Greg Roumeliotis in New York. Additional reporting by David Shepardson and David Lawder in Washington, Melissa Fares in New York, Stephen Nellis in San Fransisco, Yingzhi Yang and Gabriel Crossley in Beijing. Writing by Joshua Franklin and Brenda Goh. Editing by Mark Potter, Nick Zieminski and Jonathan Oatis.

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