The global soap opera starring the president of the United States, the popular video-sharing app TikTok, two seemingly mismatched U.S. companies, and the Chinese government could be called “The Bold and the Bewildered.”
The two contenders seeking, at the White House’s behest, to offer TikTok a U.S. shelter in a global storm — database giant Oracle Corp. ORCL, -0.32% and the world’s largest retailer, Walmart Inc. WMT, +0.90% — finally made statements over the weekend after more than a month of speculation that seemed to save the app’s future in the U.S. The companies said that they plan to buy a stake in TikTok Global, not-yet-existent company that will run the app in the U.S. and for “most users in the rest of the world,” and that TikTok Global will own all TikTok technology and comply with U.S. laws and privacy regulations in a cloud and data deal with Oracle.
But confusion reigned about TikTok Global, and whether it will really be controlled by U.S. investors or Chinese ones. ByteDance Ltd., which owns TikTok, has said in various communications that it will maintain control of its algorithm and retain an 80% interest in the deal, but Oracle issued a second statement Monday contending that U.S. investors will hold a controlling interest.
“ByteDance will have no ownership in TikTok Global,” Oracle Executive Vice President Ken Glueck said in a statement sent to reporters.
The current transaction, as best we can understand it without official filings, is remarkably different from what President Donald Trump put forth in August, when he first spoke with Microsoft Corp. MSFT, +2.40% Chief Executive Satya Nadella about the software giant’s possible involvement in taking over TikTok’s U.S. operations.
At that time Trump made the unorthodox suggestion that the U.S. Treasury get a cut of any transaction. Oracle appears to be trying to placate the president with its statement that TikTok Global will create more than 25,000 new jobs in the United States and pay more than $5 billion in new tax dollars to the Treasury, and Trump has signaled his approval for “the concept” of the deal.
From the MarketWatch archives (Aug. 4): First Take: No, Trump has no right to demand money from TikTok deal
The U.S. and China have been grappling for years with issues involving foreign ownership of key technology and the companies that create it, and Trump had already written in a strange chapter in that saga when he quashed Broadcom’s Inc.’s AVGO, +2.78% attempted hostile takeover of Qualcomm Inc. QCOM, +1.69%. But the current situation — from the public statements to the way internal deliberations have been disclosed to the public in an arena that is usually cloaked in secrecy to avoid derailing or sabotaging a transaction — boggled the minds of even those who keep the closest tabs on international deals.
Harry Broadman, a managing director at global consulting firm Berkeley Research Group and a senior fellow of the School of Advanced International Studies at Johns Hopkins University, has a long history in Washington that includes serving as a member of the government board tasked with figuring out these issues, the Committee on Foreign Investment in the U.S., or CFIUS, in the 1990s. He told MarketWatch he was in “utter amazement” as to how the TikTok deal was being handled.
“I follow this minute-by-minute, literally, [and] speak to clients and reporters all the time,” he said. “This is the challenge of assessing things — we really don’t know anything with certainty, other than the principals involved. I don’t know anyone on CFIUS who knows the full contours of what has been discussed.”
He added that CFIUS and the White House must be “beside themselves” because of the way events have transpired since Trump called vaguely for a ban on dealings with the Chinese owner of TikTok in an executive order that also targeted Tencent Holdings’ TCEHY, -0.28% WeChat.
“Why issue the executive order if you are going to negotiate that way?” Broadman asked.
More from Therese Poletti: A tale of two $2 billion Chinese IPOs headed in very different directions
CFIUS is an interagency committee created to review certain transactions involving foreign investment in the U.S. in order to determine any potential impact on national security. The transactions and deals CFIUS reviews are typically kept secret and made public only when a deal is blocked. The TikTok process, of course, has instead played out largely in the public eye.
“The Trump administration, it appears, is not one to follow norms that other administrations have followed related to CFIUS,” said Nicole Lamb-Hale, a managing director at the consulting firm Duff & Phelps, where she focuses on regulatory compliance matters including reviews by CFIUS. “If a U.S. president blocked a transaction, that would be the first time that you would hear that there [had been] a review. In this instance, we are hearing almost the blow-by-blow, the equity interests that are acceptable, etc. There is a lot of back and forth. I can’t say that I have seen anything like this before.”
According to a Wall Street Journal report, Trump had phone calls with Oracle Chairman Larry Ellison and Walmart Chief Executive Doug McMillon over the weekend. Ellison, a Trump supporter, spent much of the time getting the president comfortable with the deal, the Journal reported.
“It gives me concern that we are reading in the newspaper what seems to be the blow-by-blow of these negotiations and that the president favors one bidder over another,” Lamb-Hale said late last week, before the Journal further detailed the deal talks this week. “This should not be happening on the pages of the newspaper. We should not know what we know. It kind of diminishes the national-security issues.”
The deal requires approval by CFIUS and the Chinese government, and there remain many questions surrounding the final outcome. Based on past Trump dealings, expect additional sharp turns, bewildering statements and plenty of leaks of questionable facts before we get anything official.
Just another episode of “The Bold and the Bewildered.”