How a messy rollout threw TikTok deal into disarray

Platform Economy: TikTok smartphone app

As China’s ByteDance rushed to seal a deal with Oracle and Walmart to keep TikTok operational in the US, an apparent breakthrough happened Wednesday in a phone call to US Treasury officials.

A top ByteDance attorney hauled that the Chinese firm would agree to terms put forth by the Committee on Foreign Investment in the United States (CFIUS), a government panel chaired by Treasury Secretary Steve Mnuchin that scrutinises deals for potential national security risks. US officials are concerned that the personal data of as many as 100 million American TikTok consumers may be passed on to China’s Communist Party government.

What appeared like a coup clinched by Mnuchin, a former Goldman Sachs Group investment banker, didn’t hold. ByteDance would subsequently declare a deal under that TikTok would remain its subsidiary, contradicting Oracle and Walmart, which said the majority owners would be Americans.

ByteDance’s variant of this deal would also withstand President Donald J Trump’s order last month calling for its Beijing-based organisation to relinquish ownership of this app from the United States.

Four sources knowledgeable about the frenzied negotiations, who spoke on condition of anonymity, explained the way the preliminary deal for TikTok announced by Trump on Saturday remains in dispute.

Together with ByteDance and TikTok’s suitors angling to get an arrangement that both the United States and China can approve, crucial elements of what is the social media business’s biggest-ever deal, potentially worth more than $50 billion, weren’t spelled out in an extensive contract that is typically seen in high-stakes mergers.

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Instead, the companies were asked to agree in principle at breakneck speed to a CFIUS 20-page revision, piled in red font with mark-ups, to some proposal which ByteDance had submitted just four times before. If ByteDance didn’t have an agreement by Sunday, the Commerce Department would block updates and downloads to this TikTok app.

ByteDance and Walmart did not immediately respond to requests for comment.

After Trump obtained assurances from Oracle and Walmart on Friday that they would create 25,000 new jobs in TikTok and a launch an educational initiative for children, he chose to announce the deal himself, without a contract drawn a plan for how it could be presented to bring China onboard.

He delayed the announcement until Saturday, following the departure of Supreme Court Justice Ruth Bader Ginsburg.

Together with Trump providing scarce detail, Walmart and Oracle scrambled to issue a statement outlining the important terms of the deal as they understood them. When ByteDance then issued a statement concerning the deal on Monday, it conflicted with Oracle and Walmart’s announcement.

All the sides concur that Oracle would require a 12.5% stake in TikTok Global, a newly-created US business entity that will home TikTok’s Global company and save US user data on its cloud, together with Walmart taking a 7.5% stake.

ByteDance said it might hold an 80 percent stake in TikTok Global itself, until it starts an initial public offering in the next twelve months, and that it would then slowly lower its position.

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Oracle said on Monday the ByteDance wouldn’t own a stake in TikTok Global, and it would be ByteDance’s shareholders who’d be granted the remaining 80% bet. Additionally, this is how some Trump administration officials, and also a top ByteDance investor, have privately described the deal.

This discrepancy might be enough to scuttle the deal. If the Beijing-based firm gets to keep a vast majority stake, it would represent a significant reversal for the White House. If ByteDance got no stake in TikTok Global, it’d be a setback to China, where officials have been opposed to stripping ByteDance of one of its most prized assets.

“The divergent messages from ByteDance and Oracle reflect the difficulty of trying to thread the needle of pleasing Washington and Beijing, if that is a needle that even exists,” explained John Kabealo, a regulatory lawyer not involved in the discussions.

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It remains unclear whether the conflicting descriptions of this agreement, which still requires further CFIUS review, will be the result of ambiguity in the terms or a push by ByteDance to alleviate Chinese worries about caving into US pressure.

One way Oracle and ByteDance had attempted to minimise gaps over TikTok Global’s possession is by stressing that the new firm is going to be bulk American-owned. Approximately 41% of ByteDance’s current investors are from the United States. By minding indirect US ownership alongside Oracle and Walmart’s immediate possession, ByteDance could assert that TikTok Global would be majority American, even if the Chinese business owns an 80% stake.

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The clock is ticking for the organisations to come in terms. The Commerce Department has extended until Sunday its deadline for the organisations to finalise a deal before TikTok is banned from app shops in the United States. A deal is improbable by then, and the companies may request a new extension, two of those sources mentioned.

Benefits of TikTok Global is not the only issue that has to be ironed out. While CFIUS has approved a broad plan on how Oracle will save US user data and also inspect TikTok’s source code, details such as exact protocols for safety repairs have to be hammered out.

The team at Platform Executive hope you have enjoyed the ‘How a messy rollout threw TikTok deal into disarray‘ article. Initial reporting via our official content partners at Thomson Reuters. Reporting by Stephen Nellis in San Francisco, David Shepardson in Washington and Echo Wang in New York. Editing by Greg Roumeliotis and Nick Zieminski.

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