ByteDance abandoned the sale of TikTok in the US on Sunday to pursue a partnership with Oracle that it hopes will spare it a US ban while appeasing China’s government, people familiar with the matter said.

The Beijing-based company had been in talks to divest TikTok’s US business to Oracle or a consortium led by Microsoft after US President Donald Trump ordered the sale last month and threatened to shut down the short-video app in the US.

While TikTok is best known for its anodyne videos of dancing that go viral among teenagers, US officials have expressed concerns that user information could be passed to China’s communist government. TikTok, which has as many as 100 million US users, has said it would not comply with any request to share such data with Chinese authorities.

Sale negotiations were upended by China updating its export control rules last month to give it a say over the transfer of TikTok’s algorithm to a foreign buyer. Reuters reported last week that China’s government would rather see TikTok shut down in the US than let it be part of a forced sale.

Under the proposal, Oracle will be ByteDance’s technology partner and assume management of TikTok’s US user data, the sources said. Oracle is also negotiating taking a stake in TikTok’s US operations, they added.

Some of ByteDance’s top backers, including investment firms General Atlantic and Sequoia, will also be given minority stakes in TikTok’s US operations under the proposal, one of the sources said.

Oversight

It is unclear whether Trump, who wants a US technology company to own most of TikTok in the US, will approve the deal. The Committee on Foreign Investment in the United States (CFIUS), a US government panel which reviews deals for national security risks, is overseeing the ByteDance-Oracle talks.

“User data protection and assurances around how the company’s algorithms push content to US users are thoughtful components of a substantive solution, but whether they can change political outcomes is a much more difficult question,” said regulatory lawyer John Kabealo, who is not involved in the deal discussions.

ByteDance plans to argue that CFIUS’s approval two years ago of China Oceanwide Holdings Group’s purchase of US insurer Genworth Financial offers a precedent for its proposal with Oracle, the sources said.

In that deal, China Oceanwide agreed to use a US-based third-party service provider to manage the data of Genworth’s US policyholders. ByteDance will argue a similar arrangement with Oracle can safeguard TikTok’s US user data, the sources said.

ByteDance and Oracle did not respond to requests for comment. The White House declined to comment.

Oracle’s chairman Larry Ellison is one of the technology world’s few Trump supporters. His firm has significant technological prowess in handling and safeguarding data, but no social media experience. Its clientele comprises companies, rather than consumers. TikTok’s user data is currently stored in Google’s cloud.

Earlier on Sunday, Microsoft said ByteDance had informed it that it would not be selling it TikTok’s US operations. Walmart, which had joined the Microsoft bid, said on Sunday it was still interested in investing, and that it would have further discussions with ByteDance and other interested parties. “We know that any approved deal must satisfy all regulatory and national security concerns,” Walmart said.

Jeffrey Towson, professor of investment at Peking University’s Guanghua school of management, said Oracle’s ownership of TikTok’s US operations with access but not ownership of ByteDance’s core technology mirrored how many Western companies operate in China.

“This is bad news for Walmart more than anyone else,” he added. “Combining TikTok’s entertainment and user engagement with its e-commerce platform was its best shot at catching up with Amazon.”

As Sino-US relations deteriorate over trade, Hong Kong’s autonomy, cybersecurity and the spread of the novel coronavirus, TikTok has emerged as a flashpoint.

Executive orders

Trump signed two executive orders last month targeting TikTok and ByteDance. The first bans US companies from transacting with them and is due to come into effect on 20 September. The second requires ByteDance to sell TikTok by 12 November.

Were Trump to agree to ByteDance’s proposed deal with Oracle, he would have to rescind his order calling specifically for TikTok to be divested. — Reported by Echo Wang and Greg Roumeliotis, with additional reporting by David Shepardson, Melissa Fares, Stephen Nellis and Yingzhi Yang, (c) 2020 Reuters