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ByteDance, Oracle at loggerheads over terms of TikTok agreement

Reuters New York/Beijing | Updated on September 22, 2020 Published on September 22, 2020

The current plan for TikTok Global does not involve any transfer of algorithms or technologies, says ByteDance

ByteDance and Oracle Corp issued conflicting statements on Monday over the terms of an agreement they reached with the White House over the weekend to allow TikTok to continue to operate in the US, casting doubt on President Donald Trump’s preliminary blessing of the deal.

China’s ByteDance was racing to avoid a crackdown on its popular short-video app after the US Commerce Department said on Friday it would block new downloads and updates to the app. US officials had expressed concern that the personal data of as many as 100 million Americans that use the app was being passed on to China’s Communist Party government.

A successful deal would allow Trump to drop his threat of shutting down TikTok and avoid alienating its army of young users ahead of the November 3 US election.

Also read: TikTok’s algorithm can’t be trusted

ByteDance said on Monday that it will own 80 per cent of TikTok Global, a newly-created US company that will own most of the app’s operations worldwide. ByteDance added that TikTok Global will become its subsidiary.

Oracle and Walmart Inc, which have agreed to take stakes in TikTok Global of 12.5 per cent and 7.5 per cent, respectively, had said on Saturday that majority ownership of TikTok would be in American hands. On Monday, Oracle said ByteDance’s ownership of TikTok would be distributed to ByteDance’s investors, and that the Beijing-based firm would have no stake in TikTok Global.

Trump signed an executive order on August 14 giving ByteDance 90 days to relinquish ownership of TikTok. Oracle’s account of the deal would mean that ByteDance would be complying with that order, while ByteDance’s account would represent a policy reversal for Trump.

Trump did not comment on the conflicting accounts of the agreement on Monday, but said the deal was “working its way through” after he granted his preliminary approval.

Also read: Trump to ‘cut off’ TikTok if deal cannot be saved

“If we can save (TikTok), we will save it, and if we can’t we will cut it off. We have to have total security,” Trump told reporters before departing the White House.

The corporate governance arrangement that the companies have disclosed for TikTok Global does not award total control to Oracle and Walmart. Walmart Chief Executive Doug McMillon would be one of five directors on TikTok Global’s board, the companies have said. Others would include ByteDance founder Zhang Yiming, and the heads of ByteDance’s two top investors, General Atlantic and Sequoia Capital. The fifth board director has yet to be named.

The current plan for TikTok Global does not involve any transfer of algorithms or technologies, and Oracle will be able to inspect TikTok US’ source code, ByteDance said on Monday. This is akin to US companies such as Microsoft Corp sharing their source code with Chinese technology experts, ByteDance added. Oracle and Walmart have said all of TikTok’s technology will be transferred to TikTok Global.

The Commerce Department postponed a ban on downloads and apps to the TikTok app that was due to take effect on Sunday by one week, to give the companies time to finalize the deal.

The Committee on Foreign Investment in the United States, a government panel that reviews deals for potential national security risks, has been overseeing the negotiations.

Some sources close to the deal have sought to reconcile the discrepancies by pointing out that 41 per cent of ByteDance is owned by US investors, so by counting this indirect ownership TikTok Global would be majority owned by US parties. One of the sources said the deal with Oracle and Walmart values TikTok Global at more than $50 billion.

ByteDance on Monday also confirmed plans for an initial public offering of TikTok Global. Oracle has said this will happen in less than 12 months on a US stock exchange.

Education fund

ByteDance also said a $5-billion payment of taxes TikTok Global will make to the US Treasury is based on estimated income and other taxes the company will need to pay over the next few years, and has nothing to do with the deal reached with Oracle and Walmart.

Trump last week had said there would be a $5-billion US education fund as part of the deal, but ByteDance has said it was not aware of this. Walmart, Oracle and some ByteDance investors said they would sponsor an educational initiative for online courses for children in the suburbs and inner cities.

ByteDance owning the majority of TikTok Global and the algorithms means that ByteDance is “not out of the game” and has avoided the worst-case scenario, China’s state-run newspaper Global Times said in an editorial published on Sunday.

But on Monday, Global Times editor-in-chief Hu Xijin tweeted: “Based on what I know, Beijing won’t approve current agreement between ByteDance, TikTok’s parent company, and Oracle, Walmart, because the agreement would endanger China’s national security, interests and dignity.”

China’s foreign ministry did not immediately respond to a request for comment.

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Published on September 22, 2020
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