ByteDance has abandoned the sale of TikTok in the United States on Sunday in pursuit of a partnership with Oracle Corp that it hopes will spare it a US ban while appeasing China's government, people familiar with the matter told Reuters.
The Beijing-based company had been in talks to divest TikTok's US business to either Oracle or a consortium led by Microsoft Corp after US President Donald Trump ordered the sale last month and threatened to shut down the popular short-video app in the United States.
While TikTok is best known for its anodyne videos of people dancing that go viral among teenagers, US officials have expressed concerns that information on users could be passed on 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 the Chinese authorities.
The sale negotiations were upended by China updating its export control rules late last month to give it a say over the transfer of TikTok's algorithm to a foreign buyer. Reuters reported last week that the Chinese government would rather see TikTok shut down in the United States than let it be part of a forced sale.
Under the proposed deal, Oracle will be ByteDance's technology partner and will assume management of TikTok's US user data, the sources said. Oracle is also negotiating taking a stake in TikTok's US operations, the sources 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 proposed deal, one of the sources said.
It is unclear whether Trump, who wants a US technology company to own most of TikTok in the United States, will approve the proposed deal.
The Committee on Foreign Investment in the United States (CFIUS), a US government panel which reviews deals for potential national security risks, is overseeing the talks between ByteDance and Oracle.
"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," John Kabealo, a regulatory lawyer who is not involved in the deal discussions, said.
ByteDance plans to argue that CFIUS' approval two years ago of China Oceanwide Holdings Group's purchase of US insurer Genworth Financial offers a precedent for the deal structure it is proposing with Oracle, the sources said.
'Same as Genworth deal'
In that deal, China Oceanwide agreed to use a US-based, third-party service provider to manage the data of Genworth's US policy holders. ByteDance will argue a similar arrangement with Oracle can safeguard the data of TikTok's US users, the sources said.
ByteDance and Oracle did not immediately respond to requests for comment. The White House declined to comment.
Oracle's chairman Larry Ellison is one of the technology world's few supporters of Trump. The firm has significant technological prowess in handling and safeguarding data, but no experience in social media. Its clientele comprises companies, rather than consumers. TikTok's user data is currently stored in Google owner Alphabet Inc's cloud.
Earlier on Sunday, Microsoft said it was informed by ByteDance that it would not be selling it TikTok's US operations.
Retail giant Walmart Inc, which had joined Microsoft in its bid, said on Sunday it continued to have an interest in a TikTok investment, and that it would have further discussions with ByteDance's leadership and other interested parties.
"We know that any approved deal must satisfy all regulatory and national security concerns," Walmart said.
As relations between the United States and China deteriorate over trade, Hong Kong's autonomy, cybersecurity and the spread of the novel coronavirus, TikTok has emerged as a flashpoint in the dispute between the world's two largest economies.
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 Sept. 20. The second requires ByteDance to sell TikTok by November 12 due to US security concerns.
Were Trump to agree to ByteDance's proposed deal structure with Oracle, he would have to make a u-turn and rescind his order calling specifically for TikTok to be divested.
As many as 40% of Americans back Trump's threat to ban TikTok if it is not sold to a US buyer, a Reuters/Ipsos national poll found last month. Among Republicans – Trump's political party - 69% said they supported the president's order, even though only 32% said they were familiar with the app.
The White House has stepped up its efforts to purge what it deems "untrusted" Chinese apps from US digital networks. Beyond TikTok, Trump has also issued an order that would prohibit transactions with Tencent Holding Ltd's messenger app WeChat.
Earlier this year, Chinese gaming company Beijing Kunlun Tech Co Ltd sold Grindr LLC, a popular gay dating app it bought in 2016, for $620 million after being ordered by CFIUS to divest.
ByteDance acquired Shanghai-based video app Musical.ly – whose user base was largely American – in a $1 billion deal in 2017 and relaunched it as TikTok the following year. ByteDance did not seek approval for the acquisition from CFIUS, which reviews deals for potential national security risks. Reuters reported last year that CFIUS had opened an investigation into TikTok.
(Reporting by Echo Wang and Greg Roumeliotis in New York; Additional reporting by David Shepardson in Washington, Melissa Fares in New York and Stephen Nellis in San Fransisco; Writing by Joshua Franklin; Editing by Muralikumar Anantharaman and Christopher Cushing)