By John D. McKinnon, Alex Leary and Kate Davidson
WASHINGTON -- An emerging deal to make China's popular TikTok
app a U.S.-based business could reshape both the U.S. social-media
landscape and the global internet, but continued to spark political
debate over security concerns and ownership of the new company.
President Trump agreed in concept to a deal under which
Chinese-owned video-sharing app TikTok will partner with Oracle
Corp. and Walmart Inc. to become a U.S.-based company. The Commerce
Department said it would delay for one week a ban on U.S. downloads
and updates for the TikTok app that was set to take effect at 11:59
p.m. Sunday while the new deal for TikTok is finalized.
As part of the deal, Oracle said it would host the data for the
new U.S.-based company, to be called TikTok Global, to eliminate
the potential of it falling into the hands of the Chinese
government -- a plan that didn't fully satisfy China hawks
including Sen. Marco Rubio (R., Fla.).
"No matter where the actual data is housed, there can be
something in that code that sends it the other way," Mr. Rubio said
Sunday on Fox News. "I think we have to be very careful in looking
at that provision, because if there's any opportunity whatsoever
for China to continue to collect personal data on Americans, then
we can't be supportive of that deal."
Other questions swirled around the ownership. Mr. Trump had
called for the creation of a U.S. company to take control of
TikTok, but the deal as described by backers wasn't the full-scale
acquisition that was originally envisioned.
As initially described by people familiar with the deal, China's
ByteDance Ltd. would retain roughly 80% ownership of the company.
But because ByteDance is about 40% owned by U.S. investors, the new
company with equity stakes for Oracle and Walmart can be described
as having majority American ownership, they said.
One of the people elaborated further Sunday, saying ByteDance
wouldn't technically be an owner of the new TikTok Global entity.
Instead, shares in the new entity would be distributed
proportionally to ByteDance's current owners, which include both
Chinese and American investors.
With the addition of Oracle and Walmart taking a combined 20%
equity stake, TikTok Global would be 53% owned by U.S. companies or
investors, this person said.
Following an anticipated initial public offering the Chinese
stake in TikTok could fall to around 31%, this person said,
depending on exact details of the size of the IPO.
This person said a $5 billion fund for education of young
Americans would be funded through the IPO. That fund would serve to
satisfy Mr. Trump's demand that the government receive some money
from the deal creating the new U.S.-based entity.
Eswar Prasad, an economics professor at Cornell University and
the former head of the International Monetary Fund's China
division, said the deal is "deftly structured to thread the eye of
the needle, satisfying U.S. concerns about data privacy and
national security while staying consistent with Chinese government
requirements by leaving majority control in the hands of TikTok's
Chinese owners."
"The TikTok deal allows Trump to claim victory and portray it as
a validation of his tough, take-no-prisoners approach in dealing
with China, even if the final deal represents a compromise relative
to the administration's initial set of demands," Mr. Prasad
said.
Other observers said the deal favored political optics.
"It's bad policy," said Derek Scissors, a resident scholar at
the American Enterprise Institute. "They turned a mandate to secure
personal data into a political event." He said the negotiations
drifted into issues such as job creation that have nothing to do
with U.S. national security or consumer protection, "and open the
door for American firms to be shaken down by China and others, even
though our original inquiry was entirely legitimate."
Speaking Sunday on Fox News, Secretary of State Mike Pompeo said
the ownership arrangement satisfies the president's demand that
data not be accessible to the Chinese government.
"Whether there's still some Chinese ownership where they still
collect a royalty check from the benefits of the business, there
will be an American headquarters; it will be controlled by
Americans," Mr. Pompeo said. "And the data, most importantly, the
data, the very reason we have gone after TikTok, that data will be
in a place that we have confidence that no American will have the
risk that their data will end up in the hands of the Chinese
Communist Party."
TikTok has quickly become a social media force, a point that
TikTok's lobbyists in Washington made to the Trump campaign, a
senior campaign official said. TikTok has about 100 million monthly
users in the U.S., up from about 11 million in early 2018. While it
is mostly popular with teens, many are of voting age and live in
key battleground states such as Florida, lobbyists told the
campaign in warning against a ban.
The tactic was similar to that employed by opponents of Mr.
Trump's proposed crackdown on flavored e-cigarettes. Vaping
advocates shared with the campaign and White House polling data
commissioned by the Vapor Technology Association, that shows
flavored e-cigarettes are popular with adult consumers in key
election states, including Florida, Arizona and Michigan, and a ban
was almost universally opposed. The Trump administration eventually
released a scaled back policy.
Mr. Trump is facing severe economic pressure heading into the
election and could tout job creation -- even if details about
25,000 possible jobs under the deal remain unclear -- as evidence
he is working toward the recovery.
The Chinese government hasn't commented on the latest iteration
of the deal or Mr. Trump's endorsement of it. China's Ministry of
Foreign Affairs and Ministry of Commerce didn't immediately respond
to requests for comment.
ByteDance has been in communication with China's internet
regulator and the Ministry of Commerce on the potential sale
however, according to people familiar with the discussions.
Still, the forced sale of a piece of one of the world's hottest
internet properties -- China's first true global social-media
sensation -- angered many in China, including Fang Xingdong, a
former internet entrepreneur and founder of Beijing-based think
tank China Labs, who described it in an interview Sunday as
"daylight robbery."
One of the people familiar with the matter said the main
outstanding issues for the U.S. concerned data-security details and
didn't appear substantial. Assuming those issues are resolved,
creation of the new TikTok Global entity will proceed over the next
few weeks.
Oracle said it would have a 12.5% stake in the new entity called
TikTok Global, and would provide secure cloud service for data on
the popular app.
Walmart said it had agreed to purchase 7.5% of TikTok Global as
well as entering into commercial agreements to provide e-commerce,
fulfillment, payments and other services to the new company.
Walmart said its chief executive, Doug McMillon, would serve as
one of five board members of the newly created company.
In all, four of TikTok Global's five board members will be
Americans, according to Walmart and Oracle, which didn't
immediately name the other members.
A TikTok spokeswoman said the company was "delighted that the
individuals who've turned their creativity on TikTok into thriving
careers, the small businesses using TikTok to reach customers
during the pandemic, and the families who've found joy and
connection through our platform will be able to use TikTok for many
years to come."
--Georgia Wells and Liza Lin contributed to this article.
Write to John D. McKinnon at john.mckinnon@wsj.com, Alex Leary
at alex.leary@wsj.com and Kate Davidson at
kate.davidson@wsj.com
(END) Dow Jones Newswires
September 20, 2020 14:25 ET (18:25 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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