(Bloomberg) – Donald Trump blessed Oracle Corp.’s offer for TikTok’s American operations and put the popular video-sharing app on track to evade a US ban imposed on China as part of its print campaign.
“I approved the deal in concept,” Trump told reporters on Saturday as he left the White House for a rally in Fayetteville, North Carolina. “If they can do it, that’s great. If they don’t, that’s fine too.”
The new company, called TikTok Global, has agreed to pour $ 5 billion in new tax dollars into the United States and set up a new education fund that Trump says will meet his demand that the government receive payment from the deal . “They are going to put up a very large fund,” he said. “This is your contribution that I asked for.”
Oracle plans a 12.5% stake in the new TikTok Global, while Walmart Inc. has tentatively agreed to buy 7.5% of the company. Doug McMillon, Walmart’s chief executive officer, will serve on TikTok Global’s board of directors, the retailer said in a statement. According to a statement, four of the five board seats are held by Americans.
The Chinese owner of TikTok, ByteDance Ltd., is aiming for a value of 60 billion US dollars for the app, according to a person familiar with the matter. Oracle and Walmart would collectively pay $ 12 billion for their stakes if they agree to that price. The final assessment had not been made because the parties had worked out the equity structure and data security measures. Conditions are still in flux and the proposed rating may still change.
The US Secretary of State Michael Pompeo described the role proposed by Bytedance as similar to a “passive shareholder”. The Chinese company has “no decision-making power, no way to look at” what the US company is doing, he said on Fox News’ Sunday Morning Futures.
The TikTok deal was enforced by two bans Trump enacted in August over concerns that ByteDance posed a national security risk, and put the video-sharing app at the center of the president’s confrontation with Beijing.
Shortly after Trump signaled his approval, the trade department delayed a week on Saturday a ban that would have forced Apple Inc. and Google of Alphabet Inc. to pull the TikTok video app out of their US app stores on Sunday.
Trump is increasing the pressure on Chinese-owned apps in the weeks leading up to the November 3 presidential election, citing national security concerns about the data U.S. citizens provide them and the potential for Beijing to use it for spying. The president follows his opponent Joe Biden in polls and has tried to portray himself as tougher than the Democrat in Beijing.
TikTok said in a statement that it is “pleased that the proposal by TikTok, Oracle and Walmart will resolve US government security concerns and clarify questions about the future of TikTok in the US.”
The company confirmed that Oracle will host all US data and secure its computer systems. Oracle’s Generation 2 Cloud completely isolates running applications and, according to statements, reacts autonomously to security threats. This eliminates the risk of foreign governments spying on American users or trying to influence them with disinformation.
“Oracle will rapidly deploy, rapidly scale and operate TikTok systems in the Oracle Cloud,” said Safra Catz, CEO of Oracle, in a statement. “We are 100% convinced that we can offer TikTok a highly secure environment and guarantee data protection for American users of TikTok.”
Oracle is given full access to TikTok’s source code review and updates to ensure the company’s Chinese parents aren’t using backdoors to gather data or spy on the 100 million American users of the video-sharing app, according to those with the Matter trusted persons.
If the deal is approved, he will ensure that “no American data will have access to anyone in China who is able to take it to a place we don’t want,” Pompeo said.
“We will make sure the firewall is real, that the protection is serious, and that the data is in places that are not connected to the Chinese information system,” he said.
TikTok Global will partner with Oracle, SIG, General Atlantic, Sequoia, Walmart and Coatue to create an educational initiative to develop and deliver an online video curriculum based on artificial intelligence.
TikTok said it is working in a commercial partnership with Walmart and that it will join Oracle in a TikTok Global financing round before going public that allows investors to acquire up to 20% of the accumulated shares in the company.
TikTok Global will likely be headquartered in Texas and employ “at least” 25,000 employees, Trump said. TikTok needs to hire thousands of content moderators, engineers and marketers who were previously in China and around the world. The company will also pay more than $ 5 billion in new tax dollars to the Treasury Department, according to the Treasury Department.
To sweeten the deal for Trump, TikTok promised to add an additional 15,000 jobs, more than the 10,000 positions the company had promised to fill earlier this year. It is unclear whether there is a timetable to achieve this goal or whether it guarantees that it will be implemented. Facebook Inc., the largest US social media company, employed around 45,000 people in 2019, while Twitter Inc. had only 4,900 employees, according to Bloomberg.
Proponents of the deal told the Trump administration that the new company would be controlled by American investors by counting the passive stakes of existing shareholders in TikTok’s Chinese parent company, according to people familiar with the matter. Although ByteDance will have 80% stake in the new company, existing US investors hold 40% in ByteDance. That equates to up to 53% stake in US companies and investors – though that doesn’t include majority control or voting rights, people said.
TikTok Global, an independent company, will go public in less than 12 months and the stock is said to be listed on a US stock exchange. After the IPO, US stake in TikTok Global will grow and will continue to grow over time.
While the Chinese government must now sign the deal for it to proceed, as of earlier this week, ByteDance was increasingly confident that the proposal would work with Chinese regulators, people familiar with the matter told Bloomberg.
The early reactions of the Chinese state media were positive. “This system is still unfair, but it avoids the worst outcome of TikTok being closed or completely sold to a US company,” wrote Hu Xijin, influential editor-in-chief of the state-run Chinese Global Times.
Under the terms of the deal earlier this week, ByteDance would retain much of TikTok’s assets and control of the algorithm, with Oracle and other US investors taking minority stakes.
Trump seemed to contradict that on Saturday. “It won’t have anything to do with China, it will be completely safe, that will be part of the deal,” he said. “All control rests with Walmart and Oracle, two large American companies.”
Trump spoke to Oracle chairman Larry Ellison and Walmarts 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 donate education to meet Trump’s demand, said one respondent. ByteDance first learned about the $ 5 billion education fund from news reports, according to a company spokeswoman.
The deal came through last weekend, the result of high-level negotiations between ByteDance, Oracle and senior officials in the Trump administration after ByteDance received an offer from Microsoft Corp. and Walmart declined to purchase the U.S. TikTok service in full.
Beijing has signaled that it will give the green light to a deal as long as ByteDance doesn’t have to broadcast the artificial intelligence algorithms that drive TikTok’s service, Bloomberg reported.
The Treasury Department said the deal is subject to a security arrangement that requires approval from the U.S. Foreign Investment Committee or CFIUS. The term sheet negotiated between CFIUS and the companies now has to be formalized in a document that lists the mechanisms for implementing the contractual conditions.
This document would likely include requirements related to the formation of the new business, agreements on relationship with ByteDance, whether an IPO is part of the business, whether ByteDance must dispose of all of its stake in the IPO, and what would happen to some reason for this is that the IPO will not take place, said Aimen Mir, attorney at Freshfields Bruckhaus Deringer LLP and former deputy assistant secretary for investment security at Treasury.
In a video posted on TikTok titled #WeAreTikTok and we’re here to stay, TikTok’s interim director Vanessa Pappas thanked users for “holding on to us,” she said. “We’re here for the long term.” In the comments below, users said they were glad the ongoing drama surrounding the ban would subside. “This switch-on and switch-off situation gets on my nerves,” said @iamdavante, who has 4.1 million followers in the video app.
(Updates with Pompeo comments in sixth and 14th paragraphs.)
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