New York/Washington —  TikTok has abandoned talks with Microsoft to sell its music-video app in the US, favouring instead a partnership or restructuring deal with Oracle, people familiar with the talks said.

A deal between TikTok owner Bytedance and Oracle is likely to include a stake in a newly configured US business, but will look more like a corporate restructuring than an outright sale, said one of the people, who asked not to be identified because the information isn’t public.

The terms being discussed with Oracle are still evolving, one of the people said. But one of the options is that Oracle could take a stake of a newly formed US business while serving as TikTok’s US technology partner and housing the video app’s data in Oracle’s cloud servers. Early offers from both parties valued the US business at about $25bn, but that was before Chinese officials weighed in with new rules imposing limits on technology exports, said people with knowledge of the matter.

The sale of TikTok — forced by a Trump administration ban on grounds of national security — is one of the issues at the heart of fraying Washington-Beijing tensions. Any deal still requires sign-offs from both sides. Microsoft, which was working with Walmart, had been seen as the more likely winner but talks cooled in recent days, one person said. Microsoft wasn’t asked to make revisions to its initial offer in the face of recent signs of opposition to a deal from Chinese government officials, the person added.

It’s unclear whether a deal with Oracle would pass muster with the Trump administration, according to a person familiar with the discussions. But couching the deal as a corporate overhaul may help in Beijing. It could strike a balance, allaying fears over TikTok’s cache of sensitive US data while addressing Chinese concerns over the export of key artificial inteligence technology, said Yik Chan Chin, who researches global media and communications policy at the Xi’an Jiaotong-Liverpool University in Suzhou.

“If you say this is a hostile takeover, that may not be nice for both parties,” she said. “But if you frame it as like restructuring or spin-off,” that’s more acceptable to the two governments.

Bytedance intends to bring a proposal to the White House before a mid-September deadline imposed by Trump, a person with knowledge of the matter said. News that Oracle had leapt to the forefront ignited celebrations among TikTok’s mostly young devotees.

“TikTok sold, you guys, that means we’re not going anywhere,” declared @ElianaGhen, who has 2.4-million followers, in a video touting the Oracle deal. “Best birthday gift ever, TikTok is here to stay!” said @mrsscott_teaches, who has 22,000 followers.

The app, which lets people record and edit short video clips ranging from lighthearted lip-syncs to more serious political statements, gained popularity during the global pandemic that has kept many people cooped up indoors. TikTok’s loyal following of more than a 100-million in the US helps explain the strong interest among early suitors from Microsoft to private equity giants such as Sequoia and General Atlantic.

Walmart remains interested in making a TikTok investment alongside a consortium of investors led by Oracle. A spokesperson for the retailer said on Sunday it “continues discussions with Bytedance leadership and other interested parties. We know that any approved deal must satisfy all regulatory and national security concerns.”

A deal where Oracle takes over hosting without source code and significant operational changes would not address any of the legitimate concerns about TikTok
Alex Stamos, former chief security officer at Facebook

Talk of a corporate restructuring hearkens back to ByteDance’s original intentions earlier in the summer to sell a partial stake in TikTok’s operations. or restructure the company with a global headquarters and board of directors outside China. Those aspirations were complicated by US President Donald Trump’s threats to ban the app in the US and subsequent executive orders, which prohibit US people and businesses from doing business with TikTok.

If the Chinese company is able to get a deal through the White House that doesn’t involve an outright, forced sale, it would mark a major feat for Bytedance founder Zhang Yiming, who has been reluctant to hand over such a prized asset. But critics question how a technology partnership with Oracle, rather than an outright sale, would assuage the White House’s national security concerns.

“A deal where Oracle takes over hosting without source code and significant operational changes would not address any of the legitimate concerns about TikTok, and the White House accepting such a deal would demonstrate that this exercise was pure grift,” Alex Stamos, former chief security officer at Facebook, said in a post on Twitter.

Beijing’s stance is another big question mark. Shortly after bids from Microsoft and Oracle were submitted, the Chinese government announced its right to be closely involved in approval of any deal and opposition to exporting key algorithms such as a recommendation engine that underpins TikTok. Bytedance appeared eager for a more limited sort of agreement than Microsoft wanted, where it would retain more control, one of the people familiar with the negotiations said.

Some US officials would prefer shutting down TikTok’s US operations if a sale doesn’t meet their demands for putting the business and related data into American hands.

“Bytedance let us know today they would not be selling TikTok’s US operations to Microsoft,” Redmond, Washington-based Microsoft said in a statement on Sunday. “We are confident our proposal would have been good for TikTok’s users, while protecting national security interests.”

Microsoft representatives declined to comment beyond the statement. Representatives for TikTok declined to comment, and Oracle didn’t respond to requests for comment outside normal business hours. The White House also didn’t immediately respond to a request for comment.

Closer relationship

Microsoft was the early front-runner for the acquisition, having started talks with Bytedance weeks before Trump’s executive orders and believing it had the preliminary framework of a deal the US government could back. Buying TikTok would have given the company — which owns the Xbox video-game platform and the LinkedIn professional networking site — access to an addictive video-sharing app used by more than 100-million people in the US But events have been moving away from the software giant in recent weeks.

Oracle, a company with a closer relationship to the US president, emerged as a bidder with the backing of Sequoia Capital, a key Bytedance shareholder.

For the corporate software giant, TikTok is a less obvious fit, but may make sense in light of the company’s desire to build up its cloud-computing and consumer-data businesses. TikTok stores huge amounts of data and is a large customer of cloud services run by Amazon Web Services and Alphabet’s Google. A partnership with TikTok also resonates with Oracle chair Larry Ellison’s cheerleading for US tech interests.

For Oracle, a deal with TikTok gives the 43-year-old software maker best known for legacy corporate databases a trove of consumer information to bolster an advertising business. Oracle creates profiles of citizens and sells them to companies looking to reach specific audiences. The deal also buoys attempts to expand its cloud-computing business, providing a huge network that TikTok could use to run its application and store data via the internet.

Oracle has been nurturing a relationship with Trump since before his administration began. In 2016, CEO Safra Catz served on the president’s transition team, and two years later, dined with him at the White House, where she complained about a government contract she deemed unfair, Bloomberg reported.

Vice-president Mike Pence visited Oracle’s headquarters in Redwood City, California. Catz has contributed more than $125,000 this year to support Trump’s reelection, according to Federal Election Commission data. And Ellison let Trump use one of his California estates to hold a fundraiser in February.

In recent weeks, the US president had publicly endorsed the Oracle bid and called Ellison a “tremendous guy”. Trump economic adviser Peter Navarro, who earlier came out against a potential sale to Microsoft and had at one time advocated banning TikTok, echoed that endorsement in an August appearance on Fox News.

“If you look at Microsoft vs Oracle, the one thing that separates the two companies with respect to national security is that Microsoft has a large footprint in China,” Navarro said. “Oracle on the other hand has a strong reputation of really putting a great firewall between its operations and China and that’s an important thing.”



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