U.S. investors could get their hands on TikTok stock inside a year if the company's parent, ByteDance Ltd., pushes ahead with its deal with Oracle Corp. (ORCL) .
Both the Chinese and U.S. governments likely will need to approve the plan, which would result in a company called TikTok Global.
ByteDance is planning for an initial public offering (IPO) in the United States inside 12 months, according to multiple reports. TikTok is the world's most-popular app at the moment, downloaded by more than 2 billion people globally and used on a daily basis by 100 million Americans.
ByteDance has negotiated a deal with business software provider Oracle that would see Oracle become its preferred technology partner.
Oracle also would take a stake in the new company that Reuters says would amount to 20%. It is likely that Sequoia Capital, General Atlantic and Coatue Management -- U.S. venture capital investors with a stake in ByteDance already -- would do the same.
Walmart Inc. (WMT) had been negotiating to form a buyer's group with Microsoft Corp. (MSFT) and continues to be interested in investing into TikTok. It may end up doing so and taking a seat on the board. Microsoft, which said on Sunday that it had been rejected by ByteDance, has reiterated that it is out of the running but hasn't made that clear to the man at the top.
"We spoke today to Walmart, Oracle, I guess Microsoft is still involved," U.S. President Donald Trump said on Thursday. "We'll make a decision but not much has changed."
Bloomberg reports that U.S. Treasury Secretary Steve Mnuchin, a former Goldman Sachs (GS) and hedge fund executive, made changes to a term sheet and sent the revised version to ByteDance and Oracle, which accepted it.
The sticking points in the current negotiations would be the ownership stake that ByteDance would retain in TikTok Global and what will happen to its source code. ByteDance is keen to retain control of the company. China has ordered that predictive algorithms and artificial intelligence cannot be sold out of China without approval from the Chinese authorities.
As it now stands, it seems U.S. investors eventually will end up holding at least 60% of TikTok Global. It is not clear whether the IPO shares sold to the public and institutional investors would count toward that tally, but that would make sense as a way for ByteDance to reduce its stake.
Just to add an extra wrinkle, it appears the White House has given the OK to a term sheet on some aspects of the deal, but Trump has not yet approved it.
TikTok was recently valued at US$50 billion. TikTok Global would have a U.S. CEO, a board of directors nominated in the majority by U.S. investors and a digital security expert with oversight on how the company operates. The IPO would come on a U.S. exchange within a year, but all the details remain fluid.
ByteDance already has pledged to create 25,000 jobs in the United States. It also has set up TikTok's headquarters in Los Angeles, although its chosen CEO, the ex-Disney streaming chief Kevin Mayer, resigned after three months rather than deal with all these political headaches.
Microsoft had been negotiating to buy TikTok's operations in the United States, Canada, Australia and New Zealand. It is not clear how TikTok's non-American operations outside China will be treated.
To address national security concerns but without a sale of the software, it appears that Oracle will be able to inspect TikTok's source code but would not own it. No numbers have been thrown around as to how much each investor will put up.
Trump has ordered U.S. companies to stop doing business with ByteDance by Monday. That's 45 days after his first order on the company, due to what he says are national security concerns about the short-video app.
Trump has also ordered that ByteDance divest itself of TikTok by Nov, 13. That's based on the premise that the Beijing-based company should not have been allowed to buy the Shanghai-based short-video app Musical.ly, as it did in 2018, dramatically ramping up its U.S. customer base.
ByteDance said on Thursday that China would need to approve the proposed deal. A key sticking point for the White House is that the ByteDance stake must be less than 50% of the new company.
Among Republicans, 69% support the president's order for TikTok to be divested, although only 32% say they're familiar with what TikTok actually does.
It lets people make 15-second videos. Those are mainly dance-synchs to hot new tracks, jokes, or tips about makeup. Quite how those constitute a national security threat is anyone's guess.
A friend of mine here is convinced that Beijing executes some kind of mind control by pushing pro-Communist video content to susceptible minds while censoring topics such as Tiananmen Square, Uighur concentration camps and pro-democracy demonstrations in Hong Kong.
The Chinese authorities undoubtedly do censor that content in China, as they do on every app or tech platform. TikTok says it does not censor politically hot topics outside China. And China could use U.S.-owned apps such as Facebook (FB) , Twitter (TWTR) or LinkedIn to push propaganda.
"Clearly there's been a politicization of TikTok," Forrester Research principal analyst Dipanjan Chatterjee tells Reuters.
There are now 20 pages in the terms designed to address how the data of U.S. citizens is treated. Thank goodness those Drake dance moves won't fall into the wrong hands. What would Chinese President Xi Jinping do to the Toosie Slide?