15 Sep
by Vitaliy Dadalyan
(Bloomberg) — Zhang Yiming, founder of TikTok-parent company ByteDance Ltd., is showing Donald Trump he knows something about dealmaking too.In his proposal to partner with Oracle Corp. to address U.S. security concerns about the hit video app, the Chinese entrepreneur is offering Trump something the president has already declared unacceptable. The question now is whether Trump rejects the proposal, acquiesces or, perhaps most likely for the man behind the ‘Art of the Deal,’ opens negotiations for a compromise.The president has said that TikTok must be sold to an American owner — or shut down. What Zhang has proposed instead is a partnership with Oracle that would allow ByteDance to retain majority ownership of the business, while the U.S. software giant becomes its “trusted technology provider” to protect user data. Trump said Tuesday a decision would come “soon,” and a security panel met to review the proposal.Final details are in flux, but ByteDance’s venture investors may also take equity stakes in the TikTok business. It’s also possible the Chinese parent will try to keep full ownership of the unit, according to one person familiar with the discussions.China hawks quickly declared the offer dead on arrival. Senator Josh Hawley, a Republican from Missouri, wrote a letter to the U.S. Treasury Secretary saying that the administration should “promptly reject” the partnership and press the Chinese parent to work out a “more acceptable solution.”Zhang’s opening gambit may simply be aimed at buying himself more time as he tries to survive the clash of the world’s two superpowers. He is starting from a tough stance to open negotiations and avoid an immediate TikTok shutdown. It’s a lesson that could have been taken directly from Trump’s memoir on his days in real estate.“The worst thing you can possibly do in a deal is seem desperate to make it,” the president wrote in his best-selling autobiography with Tony Schwartz. “That makes the other guy smell blood, and then you’re dead.”Zhang is offering a few things likely to resonate with Trump. Treasury Secretary Steven Mnuchin said Monday ByteDance’s proposal would create 20,000 jobs and bring to the U.S. the headquarters for “TikTok Global,” presumably the video app’s entire international operation. Trump has made bringing jobs to the country a cornerstone of his campaign as he heads toward November’s presidential election.Zhang has also aligned himself with Oracle co-founder Larry Ellison, a fervent supporter of the president who appears to have his trust. That alliance may persuade Trump to accept a deal from Oracle he wouldn’t from another company.Trump called Ellison “a tremendous guy” in August and praised him again on Tuesday.“I have a high respect for Larry Ellison,” the president said. “He’s somebody I know, he’s been really a terrific guy for a long time.”Oracle’s proposal lacks a payment to the U.S. government that the president has insisted be the condition of any deal, according to two people familiar with the plan.Trump has made TikTok the central example of his campaign to get tough on China. He signed an executive order that bans the app in the U.S. on Sept. 20, and, in addition, ruled that ByteDance must sell the video app’s U.S. assets by mid-November under an order from the Committee on Foreign Investment in the U.S., or CFIUS.QuickTake: All About Cfius, Trump’s Watchdog on China DealmakingHeading into the last weekend of August, Zhang had been leaning toward a proposal from Microsoft Corp., where he had briefly worked. The agreement called for a full buyout of TikTok U.S. by the software giant and partner Walmart Inc.But the Chinese government intervened at the last minute with a new set of restrictions on the export of artificial intelligence technologies, including those used in the app. Beijing insisted its regulators must also approve any asset sales by ByteDance.China’s move was seen as an effort to give Zhang more leverage. He couldn’t give away too much to the Trump administration or Beijing wouldn’t sign off.Instead, Zhang turned to Ellison and Oracle. Best known for its corporate software, the Redwood City, Calif.-based company has a growing cloud computing business that could be used to host videos and strong technical capabilities for securing user data. Ellison is also known for his fierce combativeness. When Hewlett Packard fired its CEO for an alleged inappropriate relationship, Ellison called it — publicly — “the worst personnel decision since the idiots on the Apple board fired Steve Jobs.”What Zhang and Ellison crafted is nothing like the deal that the Trump administration had anticipated. Instead of buying the business outright, Oracle would make an investment in a newly restructured TikTok, people familiar with the proposal said. At least two shareholders in TikTok’s Chinese parent company, General Atlantic and Sequoia Capital, would take stakes in the new business, said one of the people, all of whom asked not to be identified because the terms aren’t finalized.“Based on the information that we have at the moment about the Oracle deal, I can’t say that I’m hugely reassured,” Fergus Ryan, an analyst at the Australian Strategic Policy Institute, told Bloomberg Television. “ByteDance is essentially under the thumb of the Chinese Communist Party.”Yet Mnuchin made it sound like the proposal is worthy of serious consideration.“We need to make sure that the code is, one, secure, Americans’ data is secure, phones are secure, and we’ll be looking to have discussions with Oracle over the next few days with our technical team,” Mnuchin told CNBC during an interview early Monday.Even if TikTok’s data is stored by Oracle in the U.S., ByteDance could keep some control over the app’s algorithms, the computer code behind what the service uses to pick and choose which videos are shown to which users. If TikTok’s algorithms remain in the hands of ByteDance, they run the risk of being manipulated by Beijing.“The CCP has enormous leverage over this company and that means it would be trivially easy for the CCP to force ByteDance to very subtly nudge up or promote content that would be preferential to one presidential candidate, for instance,” said Ryan.Ultimately, Zhang circled back to proposing a transaction similar to what he originally offered to address American scrutiny. ByteDance had been willing to set up a global headquarters for TikTok with a separate board, although he always wanted to keep his ownership.Perhaps in the end, the Chinese entrepreneur decided he could live with the dire consequences of a ban. Trump may be able to shutter TikTok in the U.S., but Zhang would maintain full ownership elsewhere — and perhaps return to the country in the future if the political environment changes.It’s a mindset Trump may be able to comprehend.“It’s been said that I believe in the power of positive thinking. In fact, I believe in the power of negative thinking,” the president wrote in his book. “If you plan for the worst — if you can live with the worst — the good will always take care of itself.”(Updates with Trump comments on timing of decision)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
