By Georgia Wells and Katy Stech Ferek
This weekend could be pivotal for TikTok and its partners, who
are working to avert a looming U.S. ban on downloads of the popular
video-sharing app and see through a deal that meets the approval of
the American and Chinese governments.
A week after that preliminary deal was struck, it is still hard
to predict what happens next. TikTok and other participants are
continuing to fine-tune the agreement, in which it would partner
with Oracle Corp. and Walmart Inc. to become a U.S.-based company
with its data secured by Oracle. TikTok also is working in the U.S.
courts to win an emergency order blocking a Commerce Department ban
on app downloads -- which, if the company fails, would take effect
Sunday night. And TikTok's Beijing-based parent, ByteDance Ltd., is
awaiting word from Chinese regulators after having submitted the
deal for their approval on Thursday.
President Trump, who last Saturday said he had approved in
principle TikTok's deal with Oracle and Walmart, on Thursday
reiterated that any final deal will need to meet his
administration's national security concerns.
"They're working to see if they can make a deal," Mr. Trump told
reporters. "If they make a deal, that's fine. And if they don't,
that's OK, too."
Mr. Trump has said that potential Chinese government access to
TikTok's data on U.S. users could pose a national security threat,
and that TikTok must either find an American buyer or face a ban.
TikTok has said it doesn't give user data to Chinese
authorities.
Under the preliminary deal that Mr. Trump blessed, Oracle and
Walmart would take a combined 20% in TikTok Global, a new
U.S.-based company that would run the global service. Details of
the structure are still in flux, people involved with the deal
talks have said, as the companies try to ensure that it will win
final approval from governments on both sides.
One point of confusion has been the exact ownership breakdown,
with the TikTok side and Oracle having issued contradictory
messages since the preliminary deal was announced. A spokesman for
ByteDance has said that it would directly hold an 80% share of
TikTok Global, while Oracle has said publicly that Americans will
be the majority owners and ByteDance will have no ownership in
TikTok Global.
One way those claims could square, according to some people
familiar with the talks, is to have ByteDance initially own its
majority stake in TikTok when the deal is completed, and then have
it reduced soon afterward. That could come by distributing
ByteDance's stake to existing shareholders, many of which are U.S.
investors, and through a fundraising round ahead of a U.S. initial
public offering that deal participants have said would come within
a year.
But another person close to the situation disputed that theory
and said Americans will be the majority owners as soon as the new
company is formed.
China's government also is weighing whether the deal accords
with recent export limits. China's ministries in charge of
commerce, science and technology in August added restrictions to
exports of data-processing technologies such as
content-recommendation algorithms, in a move widely seen as aimed
at TikTok.
Under the preliminary agreement in the U.S., TikTok's algorithm
won't change hands, but Chinese media have criticized the outlines
of the deal, and Beijing could still object, which would jeopardize
the deal's projects for completion.
The most urgent issue for TikTok, though, is heading off the
Trump administration's planned download ban, which is slated to go
into effect after 11:59 p.m. on Sunday and would bar new app
downloads and updates in the U.S. TikTok on Wednesday asked a
federal judge to halt the order, saying it violates constitutional
provisions for free speech and due process.
Judge Carl Nichols of the U.S. District Court in Washington,
D.C., plans to hold a hearing Sunday for both sides to argue their
cases before determining whether to temporarily block the ban at
TikTok's request.
Judge Nichols indicated he finds persuasive TikTok's argument
that a download ban could cause harm to the company.
TikTok lawyers have laid out in court papers the damage they say
the ban has done even before taking effect.
They said prominent TikTok content creators and their fans fled
to other platforms over uncertainty over TikTok's availability, and
that several top job candidates have rejected employment offers,
citing the U.S. government's actions.
While existing users would still have access to TikTok, a ban on
downloads would lead to "loss of TikTok's user base and long-term
erosion of market share," they said. "Continued growth is the
lifeblood of a social-media company like TikTok and essential to
maintain its competitive market position."
The Commerce Department plans a full ban for Nov. 12 if an
American deal for TikTok isn't completed by then. TikTok officials
stressed that a full ban, even temporarily, would be devastating,
estimating in court papers that a two-month blackout of the app
would lead it to lose 40% to 50% of daily active users in the
U.S.
At a court hearing on Thursday, both sides declined to provide
the judge with new information about the status or terms of the
deal.
Aaron Tilley and Miriam Gottfried contributed to this
article.
Write to Georgia Wells at Georgia.Wells@wsj.com and Katy Stech
Ferek at katherine.stech@wsj.com
(END) Dow Jones Newswires
September 26, 2020 08:49 ET (12:49 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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