TikTok, Oracle, Walmart and Trump - the shape of things to come? (Updated)

At the eleventh hour it looks as though TikTok’s US future has a reprieve following President Donald Trump giving the nod to a deal that will see Oracle and Walmart take stakes in the firm, the formation of a new US-based global company and a $5 billion fund to help bankroll a new education initiative. 

So everyone’s happy, yes? Well, up to a point. As has been the case all along since the Trump administration decided in August to come down hard on TikTok, citing security concerns, the devil is in the detail and while developments over the past couple of days look more optimistic in terms of coming up with workable deal, there are a number of questions that remain outstanding. 

This is still an evolving story - and I’d expect this report to be updated fairly regularly over the coming days and weeks! But with that caveat, here’s what’s known - and not known - as of today. 

The future’s global - and American

One of the most significant developments relates to the sticking point of ownership. Trump had initially insisted that ByteDance, TikTok’s owner, sell off its entire US operation. As recently as the middle of last week, he was still expressing objections to any deal that would leave the Chinese with any majority control, saying of the then ongoing Oracle negotiations: 

Conceptually I can tell you I don't like that [ByteDance retaining a majority ownership of TikTok]. That has been reported, but it has not been told to me yet. If that is the case, I'm not going to be happy with that. 

So has he got his way? That could be said to be a matter of opinion. It’s certainly not as clean cut a situation as the sell-off he originally demanded. The proposed deal hinges on the creation of a new entity, TikTok Global, that will be responsible for providing all TikTok services to users in the US and a large tranche of the rest of the world. 

Oracle and Walmart propose to acquire 20% of the new company - 12.5% Oracle, 7.5% Walmart. That leaves ByteDance with a holding of around 80%, which on the face of it is a majority of the kind that Trump had set himself against. 

The way this circle is being squared is by factoring in that ByteDance is itself 40% owned by US investors and that when all the numbers are crunched and balanced out, TikTok Global will have just over half (53%) US ownership. While there will be those who will point out that this doesn’t tally with Trump’s declaration at an election rally on Saturday that, “[TikTok Global]  will have nothing to do with China”, it’s an arrangement that the President appears able to live with and, crucially, sell to the home crowd as a win over the Chinese. 

The Oracle/Walmart statement emphasises that legally and operationally TikTok Global will be an independent American company, with 4 Americans taking seats on the 5 strong board of directors, including Walmart CEO Doug McMillon. It will be headquartered in the US, with Texas seemingly the preferred destination. TikTok recently opened an office in Austin, while Oracle also already has a footprint of a few thousand employees there. It’s a Republican state and the promise of 25,000 new jobs related to the deal will be seen by the Trump camp as doing no harm electorally whatsoever. 

The intention is to have an IPO within a year, following which TikTok Global will be listed on a US exchange with estimated valuations as high as $60 billion. According to a Walmart statement on the proposed deal:

We would work toward an Initial Public Offering of the company in the United States within the next year to bring even more ownership to American citizens. 

But to complicate matters, ByteDance has now said in a blog post that founder Zhang Yiming and the company’s current directors will remain in their roles and that it was only "a rumour" that the TikTok Global board would be majority US-led. It says TikTok Global will be a wholly-owned subsidiary. 

Oracle takes a different view:

Upon creation of TikTok Global, Oracle/Walmart will make their investment and the TikTok Global shares will be distributed to their owners, Americans will be the majority and ByteDance will have no ownership in TikTok Global.

What Oracle and Walmart get

Given that data security concerns were nominally the driver for the Trump administration’s threat to shut TikTok down in the US, the proposed deal focuses heavily on addressing that aspect. All US data will be moved to Oracle’s Generation 2 Cloud data centers, with Oracle CEO Safra Catz quoted in the announcement as stating: 

We are a hundred per cent 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 would be a big win for Oracle’s infrastructure ambitions, which CTO Larry Ellison made clear in the firm’s quarterly conference call earlier this month are a top priority for the provider. On the same call, he pointed repeatedly to the boost that the company’s goals had received from its recent deal with Zoom with the rise of remote working feeding demand for services. The Zoom use case reference was again cited in the TikTok Global announcement. 

The joint statement from Oracle and Walmart says that all TikTok technology will be in possession of TikTok Global and will comply with US laws and privacy regulations. Oracle also has the right to inspect source code in the US. What wasn’t initially clear was who will own the underlying algorithm. ByteDance had previously insisted that it would not lose control of that and specific reference to it is conspicuously absent from the joint statements this weekend.

But ByteDance has now stated that the current plan “does not involve the transfer of any algorithms and technologies”, noting that source code inspection is an established practice: 

Displaying the source code is a very common way for multi-national companies to resolve local data security issues.

There are also likely to be questions raised by privacy activists about what happens in the case of data that comes from outside the US. Will, for example, a user in the European Union see his or her data sent to Texas for processing and storing? Or will the intention longer term be to host non-US data in EU data centers where it will be subject to EU laws and privacy regulations? Given the recent collapse - and as yet, non-replacement - of the Privacy Shield data transfer arrangement and ongoing battles with the likes of Facebook about sending data to the US, there could be fodder here for Max Schrems and like-minded followers.  [NB - we’ve asked for more detail on this subject and will update accordingly]. 

As for Walmart, in its role in TikTok Global it will: 

bring its omni-channel retail capabilities including its Walmart.com assortment, eCommerce marketplace, fulfillment, payment and measurement-as-a-service advertising service.

In addition, the deal will further its ambitions around social commerce. TikTok has around 100 million users in the US, mostly with the sought-after younger demographic receptive to being pitched video content about products by so-called influencers which can then be clicked through into a transaction. Chinese e-commerce platform providers have been adept at building out these capabilities and Walmart’s part-ownership of one of the most powerful outreach platforms would be a clear asset. 

That $5 billion

According to President Trump, he spoke with McMillon and Ellison late last week and at some point asked them to set up a fund to bankroll a new educational initiative to teach “the miracle of American history”. In recent times, the President has railed against The New York Times Magazine's '1619 project’, which frames US history around the consequences of slavery, and announced his own alternative initiative, ‘The 1776 Commission'. 

According to the Trump version of events at his Saturday night election rally, he told the company CEOs: 

I said, could you do me a favor, could you put out $5 billion into a fund for education, so we can educate people, as to real history of our country, the real history, not the fake history…they are putting up $5 billion dollars.

And he added: 

My only problem is, they did [agree] so fast, I should have asked for more.

It was already known that as part of any approved transaction Trump wanted “a big chunk of that money to go to the United States government because we made it possible”, and openly expressed his frustration when told that this wasn’t legally possible: 

Amazingly, I find that you're not allowed to do that. You’re not allowed to accept money. If they are willing to make big payments to the government, they are not allowed because there's no way of doing that, there's no legal path of doing that.

So is this new fund an alternative path? How the Oracle/Walmart announcement words the arrangement is: 

TikTok Global will pay more than 5 billion in new tax dollars to the US Treasury. 

ByteDance has now suggested that the $5 billion is  a “forecast” of corporate and other taxes over the next few years:

As for the so-called $5-billion tax to the US treasury, that refers to an estimate of the corporate income tax and other taxes TikTok will have to pay in coming years as part of its business development. TikTok is confident in its future but the actual tax amount will have to be determined in accordance with the actual state of the business and American tax structures.The tax forecast has nothing to do with this cooperation plan.

That being the case, it seems that the $5 billion is potentially on the table, but not in the 'here’s the cash’ impression that the Trump campaign rally spin suggested. 

What will happen is that TikTok Global has committed to working with Oracle, SIG, General Atlantic, Sequoia, Walmart and Coatue to: 

create an educational initiative to develop and deliver an AI-driven online video curriculum to teach children from inner cities to the suburbs, a variety of courses from basic reading and math to science, history and computer engineering.

My take

Well, let’s start with the obvious - this isn’t a done deal…yet. That said, it’s all looking a lot more promising than a few days ago when this weekend would have seen a ban on Americans downloading TikTok apps from online marketplaces. Secretary of Commerce Wilbur Ross has confirmed that there’s a moratorium on that move, albeit only for a week at present. 

It’s a proposed deal that has clear wins for Oracle’s public cloud and data brokering ambitions, Walmart’s e-commerce growth prospects as well as TikTok’s continued US presence. 

While President Trump has indicated his approval, the transaction will still need be finalized and signed off by various US government committees and regulators. It remains to be seen what impact ByteDance's contradictory commentary on the specifics of the deal will have on those decisions. The response from Trump himself this morning: 

They will have nothing to do with it, and if they do, we just won’t make the deal. It’s going to be controlled, totally controlled by Oracle, and I guess they’re going public and they’re buying out the rest of it -- they’re buying out a lot, and if we find that they don’t have total control then we’re not going to approve the deal.

The deal also, crucially, needs to be signed off by the Chinese authorities. This weekend,Beijing has announced powers to curb trade, investment and operations of foreign companies deemed “unreliable”. That said, state-owned media this weekend, while still complaining about the unfairness of US actions, were giving out mostly positive signals about the proposed deal. 

There is also the small matter of a US election in November. If Trump is re-elected, the direction of travel seems to be set. Over in the Biden camp though, Joe Biden himself on Friday suggested he has another view, before the proposed deal was confirmed: 

It’s a matter of genuine concern that TikTok, a Chinese operation, has access to over 100 million young people, particularly in the US. What I always worry about though, is what Trump does and the way he does it on the eve of an election. All of a sudden he’s decided he’s going to deal with TikTok, and he’s talking about how we have to make money off of it. I mean, what the hell is he talking about? Either it is a security risk or isn’t a security risk.

So, as I said at the start, this remains an evolving story and one to which we will inevitably return across the coming days and weeks. Final word, for now, to Trump: 

If they get it done, that’s great. If they don’t, that’s fine too. 

Watch this space.