TikTokkers can keep TikTokking. WeChatters can keep WeChatting. And President Donald Trump's attack on both appears to have been - like his continued criticism of China - nothing more than a negotiating ploy to grift a little business.
It's hard to see how the compromise reached over TikTok's global business satisfies bone fide national-security concerns - unless, as I've said all along, it's been a hustle all along.
The world's most-popular app will combine its operations outside China into a new U.S.-based company, TikTok Global.
TikTok Global will remain a subsidiary of Beijing-based ByteDance Ltd., the Chinese company reasserted on Monday. That's even though, if you bend over backwards, U.S. investors actually own a majority of the company.
ByteDance will not have given up control, and will retain 80% ownership of the new company. Oracle (ORCL) will take a 12.5% stake in TikTok Global, while Walmart (WMT) will own 7.5% as a commercial partner.
ByteDance said Monday that it plans an initial public offering for TikTok Global, which it has promised to do on a U.S. market, although it's unclear if there will be a concurrent listing in China or Hong Kong.
As it now stands, U.S. investors do own more than half of TikTok Global, if you factor in the existing ownership of parent ByteDance. U.S. investors including venture-capital funds Sequoia Capital, General Atlantic and Coatue Management together already own 40% of ByteDance. That means they own 40% of the 80% that the Beijing company owns in the new company, which means 32% of TikTok Global. Add in the 20% Oracle-Microsoft (MSFT) stakes. Hey presto, 52%!
Nevertheless, the U.S. company remains a subsidiary of a Chinese company. ByteDance will not hand over TikTok's source code, although Oracle can inspect it for security checks. Although it has not said how much of TikTok Global will be offered to the public in an IPO, ByteDance could sell off another 29% of its shares while maintaining majority control. Bloomberg reports that ByteDance would seek a US$60 billion valuation for TikTok Global.
Trump had ordered that U.S. companies stop doing business with TikTok and the Chinese superapp WeChat by Monday. That had seen app stores preparing to remove the apps by late Sunday.
The U.S. Commerce Department on Friday ordered app stores to stop stocking WeChat and TikTok, and for U.S. companies to stop any commercial transaction with WeChat. Such a move was averted by the last-minute deal over TikTok, which 100 million Americans use daily. It was the most-downloaded app globally in August, and has been downloaded more than two billion times worldwide.
A U.S. federal judge in California also issued an injunction on Sunday against Trump's executive order against WeChat, ensuring WeChat can continue to operate in the United States, where it has been downloaded almost 22 million times. It is popular with Chinese expatriates and American Chinese with relatives in mainland China, where it is ubiquitous and a part of daily life.
Former YouTube executive Vanessa Pappas has become interim head of TikTok's global operations. The Australian issued a statement on Sunday saying TikTok has confirmed a proposal that will resolve the administration's security concerns and settle questions about the future of its U.S. business.
Oracle will become TikTok's "trusted cloud and technology provider," and will secure the data of its users. TikTok Global will be based in the United States, she said, and will bring 25,000 jobs to the country, up from its current U.S. headcount of around 1,000.
The company had already named Roland Cloutier, a former cybersecurity specialist at the U.S. Air Force and Department of Defense, as its chief information security officer.
TikTok Global will have ByteDance founder, chairman and CEO Zhang Yiming on the board, as well as Walmart CEO Doug McMillon. ByteDance directors will also take seats on the board.
ByteDance said a "so-called tax payment of $5 billion to the U.S. Treasury" is in fact a forecast of the corporate income tax and other operating taxes that it will pay. The US$5 billion figure has nothing to do with the Oracle-Microsoft deal, it said.
Trump has said that the TikTok Global deal involves a US$5 billion "donation" to create a U.S. education fund. He previously said the U.S. government should get a cut of any TikTok deal as a strange and unprecedented finder's fee.
"I said, you know, do me a favor, could you put up US$5 billion into a fund for education so we can educate people as to the real history of our country, not the fake history," Trump said at a North Carolina rally on Saturday, according to Reuters.
Trump signed an executive order on August 14 giving ByteDance 90 days to divest the U.S. operations of TikTok. This current deal does not divest TikTok but creates a new partnership and corporation. ByteDance notes the new entity will require approval from the governments of both the United States and China.