The Trump administration has conditionally approved a deal, which will see Chinese-owned video-sharing app TikTok partner with Oracle and Walmart to become a US-based company, capping negotiations that have stirred debate over national security and the future of the Internet.
“I have given the deal my blessing,” President Donald Trump told reporters at the White House on Saturday, “if they get it done that’s OK too, if they don’t that’s fine too.”
With this announcement, the US Commerce Department placed a one-week delay on a ban of US downloads and updates for the TikTok app set to take effect last Sunday. The ban is currently postponed until September 27, but could be further delayed or removed if the proposed new partnership pulls through.
TikTok becomes TikTok Global in the US
Details of the proposed deal have recently emerged, following a previous report on Microsoft’s failed bid in acquiring TikTok US’s operations.
Under this deal with Oracle and Walmart, TikTok will create a new company called TikTok Global. The company will be responsible for providing all TikTok services to users in the United States and most of the users in the rest of the world.
ByteDance said on Monday that TikTok Global will become its subsidiary under the deal with Trump.
Oracle said in a statement it would take a 12.5% stake in TikTok Global. As TikTok’s secure cloud technology provider, Oracle will store all TikTok’s US user data to comply with US national security requirements.
It would also get full access to review TikTok US’s source code and updates, according to people familiar with the matter.
“Oracle will quickly deploy, rapidly scale, and operate TikTok systems in the Oracle Cloud,” said Oracle CEO, Safra Catz.
ByteDance has confirmed this, adding that the current plan for TikTok Global does not involve any transfer of algorithms or technologies.
“We are a hundred percent confident in our ability to deliver a highly secure environment to TikTok and ensure data privacy to TikTok’s American users, and users throughout the world,”
Retail giant Walmart has also announced it will take a 7.5% stake in the new entity. In addition to its equity position, Walmart will bring its omni-channel retail capabilities, providing e-commerce, fulfillment, payment and other services to the new company.
“This partnership will provide Walmart with an important way for us to expand our reach and serve omnichannel customers as well as grow our third-party marketplace, fulfillment and advertising businesses,” according to a statement released by the company.
The two companies are expected to pay a combined US$12 billion for their stakes if they agree to the US$60 billion valuation from ByteDance, Bloomberg reported.
While Oracle and Walmart have said that TikTok Global will be majority-owned by US investors, this is the case only if ByteDance’s investor base is taken into account, according to a source familiar with the matter. This is because, while China’s ByteDance owns 80% of TikTok Global, 41% of ByteDance is owned by US investors.
It is possible that ByteDance’s ownership of TikTok will be reduced further next year, with TikTok confirming plans for an initial public offering of TikTok Global in about a year’s time. The five board members of TikTok Global would include ByteDance founder Zhang Yiming, Walmart’s chief executive Doug McMillon as well as current directors of ByteDance, TikTok said.
In a joint statement, Oracle and Walmart announced a plan to create an educational initiative to provide an artificial intelligence-driven online video curriculum teaching a range of subjects together with TikTok Global, and ByteDance’s US investors, including Sequoia Capital, General Atlantic and Coatue. However, ByteDance said that it was not aware of this matter.
With the establishment of TikTok Global, the company is forecast to create 15,000 new jobs in the United States, this is in addition to the 10,000 positions the company pledged to fill earlier this year.
TikTok Global will also pay more than US$5 billion in new tax dollars to the US Treasury, but it is unclear over what period or the planned payment that will take place. ByteDance clarified that the US$5 billion payment is based on estimated income and other taxes the company will need to pay over the next few years, and has nothing to do with the deal reached with Oracle and Walmart.
However, multiple hurdles remain, even as the Trump administration cleared the proposed deal between Oracle and ByteDance. The final deal will need approval from relevant authorities in China and the US.
According to an expert cited by the South China Morning Post, granting Oracle access to TikTok’s source code may constitute a cross-border technology transfer under China’s new tech export rules.
As a result of the tensions in the US, ByteDance is also expected to invest billions of dollars and recruit hundreds in Singapore as part of its global expansion. The city-state has become a safe haven for tech companies due to its political neutrality and mature digital infrastructures.
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Image Credit: Reuters