Key Points 

• In the eleventh hour, Tik Tok averted a shutdown in the U.S after President said he has given his blessing to a deal with Oracle and Walmart.
• The deal announced by the companies would create a new company Tik Tok Global that will be headquartered in the U.S.
• Silicon Valley giant Oracle will become a minority investor with a 12.5% stake in Tik Tok Global and a cloud partner.
• Tentatively, Walmart will own a 7.5 % stake in Tik Tok Global as a commercial partner and CEO Doug McMillonwould would serve as one of the five board members.
• Tik Tok’s Chinese parent company Byte Dance will own the remaining 80% of Tik Tok Global.

 

Tik Tok successfully averted the app store ban in the eleventh hour, with President Trump giving preliminary approval to the landmark deal with Oracle and Walmart. Meanwhile, the U.S judge issued a ruling early Sunday morning to block the WeChat ban.

Background: 

In August, Trump had issued an executive order to face a ban if  Tik Tok U.S operations were not sold to an American company by September 20, owing to its data privacy concerns related to Tik Tok’s ownership by a Chinese tech company. 

• Tik Tok denied it and said that 100 million American users’ data is stored in the U.S and back up in Singapore.
• Shortly after the announcement, Byte Dance was in talks with Microsoft or Oracle to sell Tik Tok’s U.S operations.
• Meanwhile, the talks went kaput after the Chinese government implemented new rules on AI technology exports that prevented Tik Tok from transferring its recommendation algorithm and technology.

 

Of note: Presently, The U.S. Commerce Department has announced a delay by week to September, 27 to the executive order deadline.

What he’s saying: After all the twists and turns, Trump approved the deal ‘in concept’ and said,

“I think it’s going to be a fantastic deal. I have given the deal my blessing. If they get it done that’s great, if they don’t that’s okay too.” 

He further added that the new entity to be formed will be exclusive for U.S operations.

“It will have nothing to do with any outside land, any outside country, it will have nothing to do with China. It’ll be totally secure. That’ll be part of the deal.”

• The President also noted that the new company will likely be headquartered in Texas and could bring at least 25,000 jobs across the country.
• One of the stipulations for approving the deal was a $5 billion commitment towards an education fund to teach kids about history, science, and other subjects.
• Trump also noted that “it’ll be totally controlled by Oracle and Walmart”.

 

Yes, but not completely true. Tik Tok Global will be a 100% subsidiary of the Chinese parent company Byte Dance. The company is planning to raise pre-IPO financing with new investors Oracle and Walmart taking 20% – 12.5% and 7.5% respectively after which Tik Tok Global will be a 80% holding subsidiary of  Byte Dance. 

However, Americans will hold a 4-1 majority on the TikTok Global board, whereas ByteDance shareholders —  will own a majority of shares in the company that includes American, Chinese, and international investors. This shows Byte Dance will have some control over the product’s intellectual property. Therefore, it is debatable to say whether the Americans will have total control over the company from governance, management, and technology standpoint.

What did Tik Tok say:

 “We are pleased that the proposal by TikTok, Oracle, and Walmart will resolve the security concerns of the US Administration and settle questions around TikTok’s future in the US.”

pic.twitter.com/jWxjnAIwZQ

— TikTokComms (@TikTokComms) September 19, 2020

 

What did Oracle say: Oracle CTO Larry Ellison said Tik Tok will run on the Oracle cloud. CEO Safra Catz said,

“Oracle will quickly deploy, rapidly scale, and operate TikTok systems in the Oracle Cloud. We are a hundred percent confident in our ability to deliver a highly secure environment to TikTok and ensure data privacy to TikTok’s American users, and users throughout the world.”

“This greatly improved security and guaranteed privacy will enable the continued rapid growth of the TikTok user community to benefit all stakeholders.”

What does this mean for Oracle:

• The cloud deal is a huge win for Oracle and shows its expertise in cloud computing which is majorly dominated by Amazon and Microsoft.
• Oracle can expect a nice ROI when Tik Tok Global has a public listing n a year.
• Oracle will be the ‘trusted technology’ partner who will use its cloud infrastructure to protect U.S data.
• Oracle Generation 2 will isolate running applications and responds to security threats autonomously.

What did Walmart say: The retail giant will be a commercial partner and outlined the following in a statement:

“This partnership will provide Walmart with an important way for us to expand our reach and serve omnichannel customers as well as grow our third-party marketplace, fulfillment, and advertising businesses.”

• Walmart said it will provide “eCommerce, fulfillment, payments and other omnichannel services to TikTok Global.”
• It would work toward a public listing of TikTok Global in the U.S. “within a year”  to bring more ownership to American citizens.
• The deal can help Walmart gain a foothold in social commerce and access to users who are younger than average Walmart shoppers.

What happens next: As reported by Bloomberg, The two companies would pay a combined $12 billion for their stakes if they agree to an asking price of $60 billion. However, the companies are yet to negotiate and finalize the valuation as they have worked out only equity and measures for data security.

As the deal inches closer, there are certain impending concerns :

• The Chinese government is yet to approve the deal. If sources are to be believed the deal will get a nod from China as it adheres to the new tech export rules.
• Given that Tik Tok is not completely cut loose of Chinese ownership, it is unclear whether it will satisfy the requirements of the U.S national security concerns.

This Tik Tok saga had many twists and turns and according to the U.S treasury, the deal still needs to be finalized and approved by the federal national security committee. More drama can be expected in the coming weeks.

Bottom Line: On the face of it, Tik Tok is here to stay and time-being influencers can do the happy dance.

Read more: Tik Tok Widens Ad Options With New Marketing Tools, Rolls Out New Feature ‘Stitch’