TikTok’s Oracle deal go-ahead likely to be a ‘close call’ ahead of Trump deadline, say analysts

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TikTok’s proposed partnership with Oracle could open the door for the Chinese video app to realise its global ambitions but analysts have mixed views on whether the deal is likely to be approved by the US government.

US President Donald Trump said on Tuesday that both companies “are very close to a deal,” adding that he was a fan of Oracle’s chairman Larry Ellison, who earlier this year held a fundraiser for the Trump campaign.

The success of the deal depends on a number of factors, including Oracle’s government relations, how it manages the post-deal relationship between TikTok and its Chinese owner ByteDance, as well as Beijing’s own thinking, analysts said.

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Unlike the outright sale of TikTok that Trump wanted, the deal would make Oracle a “trusted technology provider,” Oracle confirmed on Monday. It would take over the management of TikTok’s user data in the US, Reuters reported.

Under the proposal, ByteDance would transfer TikTok‘s global business operations to a new US-headquartered company with Oracle as a minority shareholder, the Financial Times reported, citing sources. Other US investors would own a minority stake while ByteDance would be the majority shareholder of the new entity, the report said.

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“It would be unusual for something this complicated to be handled in one meeting, and Oracle being a ‘trusted technology partner’ does not appear to constitute the separation from ByteDance that the White House was looking for. I wouldn’t place bets that this will be resolved by September 20,” said Allan Grauberd, chair of the securities and capital markets group at Moses & Singer.

Others are more optimistic it will be approved given the good relations between Oracle and the White House. As well as Ellison’s support for Trump, Oracle’s chief executive Safra Catz joined the Trump transition in December 2016.

“This deal isn’t what Trump wanted, he wanted ByteDance to sell. But because Oracle has a good relationship [with the administration], if they have a technical answer that’s believable, I think the President will let the deal go through,” said James Lewis, director of the technology policy program at the Washington-based Centre for Strategic and International Studies.

Lewis said the uncertainty lies in how Oracle will work with ByteDance to ensure data security between the Chinese parent and TikTok. “They need to build a firewall between ByteDance and TikTok,” he said.

TikTok’s fate has been complicated by demands from Washington and Beijing, as well as the global ambitions of its Chinese owner. The Trump administration threatened to ban TikTok as recently as Sunday if ByteDance did not divest the short video app, which Washington sees as a security threat.

Beijing recently introduced new export controls that restricted the sale of ByteDance’s key algorithm. Meanwhile Zhang Yiming, the founder of ByteDance, has been reluctant to sell TikTok as it would end his dream of creating a global business.

The proposed deal with Oracle would not require ByteDance to apply to Chinese authorities for an export licence for TikTok’s algorithm, a condition that forced other buyers, including a consortium led by Microsoft, to reconsider, according to Reuters. Microsoft said on Sunday that its offer had been rejected by ByteDance.

The other wild card is Beijing. Even if Trump approves the deal, the Chinese government could intervene at any time, said Lewis. “This deal is structured in a way that makes it more palatable to the Chinese government. Hopefully that will work, but Beijing can always say, ‘hey, we changed our mind, we don’t like this’.”

In fact, Beijing’s decision to impose export controls was a “huge strategic win” for TikTok and a “poison pill” that killed the sale to Microsoft because it excluded the source code and algorithm from any deal, said Dan Ives at Wedbush Securities in New York.

Instead of facing prospects of a forced sale or shutdown, TikTok now gets Oracle as a technology partner. “Resolving this TikTok and ByteDance stand-off and complex Rubik‘s Cube political backdrop is a relief for tech investors with Oracle in the winners circle,” he said.

In this file photo the Oracle logo is displayed on the company's world headquarters in Redwood Shores, California. Photo: AFP
In this file photo the Oracle logo is displayed on the company's world headquarters in Redwood Shores, California. Photo: AFP

Ives said using Oracle as a technology partner would alleviate Washington’s main concern over potential “back doors” that could give Beijing access to US user data, a concern that was the catalyst for the original Trump executive order.

Dov Levin, assistant professor of international relations at the University of Hong Kong, believes any approval decision will be “a close call”, pointing out that “China hawks in the US are already quite unsatisfied with [the proposal] and may openly attack Trump if he approves it.”

However, Levin said the upcoming election would also play a role. “Rejecting the deal and effectively shutting down TikTok after having on the table a deal with a major and respectable US company... would anger many US users of the app less than two months before the US election, something Trump doesn’t want either,” he said.

Rather than take action by its own September 20 deadline to shut down or ban TikTok, the Trump administration is likely to review the proposal and then “issue a set of prohibited transactions that enable [TikTok] to keep operating while the negotiations between TikTok and Oracle continue”, according to Wade Weems, a Shanghai-based lawyer at Kobre & Kim.

The US government would make suggested improvements and adjustments, “all with an eye to finalising this deal before the CFIUS Executive Order deadline in December,” added Weems, a former prosecutor with the US Department of Justice National Security Division.

Last month ByteDance sued the US government, challenging Trump‘s executive order from August 6 which prohibited US transactions with ByteDance effective September 20.

“In theory, the Trump administration has the legal tools they need to ban TikTok, or any Chinese communication app, from the US if they want. However such an attempt is likely to raise serious legal concerns,” said HKU’s Levin, adding that while TikTok can challenge the legality of an outright ban, success is not guaranteed.

However, there are other advantages to the lawsuit, such as buying ByteDance more time in the event that the Oracle deal is not acceptable to Trump, according to Weems.

“If this is the case, I would expect the company to immediately move for a preliminary injunction and ask the court to order a halt to the implementation of the executive order until the case is decided,” he said. “This would give them a great deal of leverage in any subsequent negotiations with the government or with other potential buyers.”

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