Oracle is in the Lead Over Microsoft in Negotiations for the U.S. Operations of TikTok, Sources Say

Date: 2020-09-14 11:58:54

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Oracle edged out rival Microsoft in negotiations for the U.S. operations of TikTok, people familiar with the talks said, as the Chinese-owned music-video app attempts to avoid getting shut down in a clash between the world’s two superpowers.

A deal between TikTok owner ByteDance. and Oracle will look more like a corporate restructuring than the outright sale Microsoft had proposed, though it is likely to include a stake in a newly configured American business, said one of the people, who asked not to be identified because the information isn’t public.

The terms being discussed with Oracle are still evolving, one of the people said. One of the options being explored is that Oracle could take a stake in a newly formed U.S. business while serving as TikTok’s U.S. technology partner and housing the video app’s data in Oracle’s cloud servers. Early offers from both parties valued the U.S. business at about $25 billion, but that was before Chinese officials weighed in with new rules imposing limits on technology exports, said people with knowledge of the matter.

Oracle’s shares traded as much as 17% higher in early trading before markets opened in New York on Monday, after closing at $57 on Friday.

The sale of TikTok — forced by a Trump administration ban on grounds of national security — is one of the issues at the heart of the fraying Washington-Beijing relationship. Any deal still requires signoffs from both sides. Microsoft, which was working with Walmart Inc., had been seen as the likely winner but talks cooled in recent days, one person said. Microsoft wasn’t asked to make revisions to its initial offer in the face of recent signs of opposition to a deal from Chinese government officials, the person added.

It’s unclear whether a deal with Oracle would pass muster with the Trump administration, according to a person familiar with the discussions. But couching the deal as a corporate overhaul may help in Beijing. It could allay fears about TikTok’s cache of sensitive U.S. data while addressing Chinese concerns over the export of key artificial-intelligence technology, said Yik Chan Chin, who researches global media and communications policy at the Xi’an Jiaotong-Liverpool University in Suzhou.

“If you say this is a hostile takeover, that may not be nice for both parties,” she said. “But if you frame it as like a restructuring or spinoff,” that’s more acceptable to the two governments.

China’s government on Monday declined to comment on the prospect of a ByteDance-Oracle tie-up.

“China has talked about its position on TikTok many times. The U.S. is now encircling TikTok. This is a typical coerced transaction by the government,” Foreign Ministry spokesman Wang Wenbin said at a briefing in Beijing.

ByteDance intends to bring a proposal to the White House ahead of a mid-September deadline imposed by Trump, a person with knowledge of the matter said. The progress in the talks with Oracle ignited celebrations among TikTok’s mostly young devotees.

“TikTok sold, you guys, that means we’re not going anywhere,” declared @ElianaGhen, who has 2.4 million followers, in a video touting the Oracle deal. “Best birthday gift ever, TikTok is here to stay!” said @mrsscott_teaches, who has 22,000 followers.

The app, which lets people record and edit short video clips ranging from lighthearted lip-syncs to more serious political statements, gained popularity during the global pandemic that’s kept many people cooped up indoors. TikTok’s loyal following of more than 100 million in the U.S. helps explain the strong interest among early suitors, from Microsoft to private equity giants such as Sequoia and General Atlantic.

Walmart remains interested in making a TikTok investment alongside a consortium of investors led by Oracle. A spokesperson for the retailer said Sunday it “continues discussions with ByteDance leadership and other interested parties. We know that any approved deal must satisfy all regulatory and national security concerns.”

Talk of a corporate restructuring harks back to ByteDance’s original intentions earlier in the summer to sell a partial stake in TikTok’s operations, or restructure the company with a global headquarters and board of directors outside of China. Those aspirations were complicated by Trump’s threats to ban the app and subsequent executive orders, which prohibit U.S. people and businesses from doing business with TikTok.

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