ByteDance plans TikTok IPO to win U.S. deal as deadline
looms: sources
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[September 18, 2020] By
David Shepardson, Stephen Nellis and Echo Wang
(Reuters) - China's ByteDance is planning a U.S. initial public offering
of TikTok Global, the new company that will operate the popular short
video app, should its proposed deal be cleared by the U.S. government,
people familiar with the matter said on Thursday.
ByteDance is racing to clinch an agreement with the White House that
will stave off a U.S. ban on TikTok that President Donald Trump has
threatened could happen as early as next week.
Trump ordered ByteDance last month to divest TikTok amid U.S. concerns
that the personal data of as many as 100 million Americans who use the
app could be passed on to China's Communist Party government.
On Wednesday, he reiterated he was opposed to ByteDance retaining
majority ownership of TikTok.
The White House and ByteDance have agreed to a term sheet on some
aspects of a deal, although Trump has not yet approved it, one of the
sources said. Top ByteDance U.S. investors, Oracle Corp and potentially
Walmart Inc would hold at least a 60% stake in TikTok's U.S. operations,
the source said.
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White House Chief of Staff Mark Meadows said the situation was still
fluid.
"There's no definite proposal that the president's being asked to
consider or reject at this point," Meadows told reporters.
The new company, dubbed TikTok Global, will have a majority of American
directors, a U.S. chief executive and a security expert on the board,
the source added. Oracle has agreed to eventually own a 20% stake in the
company, according to the source. If Walmart also successfully
negotiates acquiring a stake, its CEO, Doug McMillon, would get a seat
on TikTok Global's board, the source said.
Trump said that his administration talked with Walmart and Oracle on
Thursday but "nothing much has changed" regarding a deal.
He added, without giving details, "I guess Microsoft is still involved."
Microsoft said on Sunday its offer for TikTok was rejected. Microsoft
did not immediately respond to a request for comment on Thursday.
"We'll make a decision soon," Trump said.
An IPO of TikTok would be one of the technology sector's biggest-ever
stock market debuts, given that the app was recently valued by ByteDance
investors at more than $50 billion. It would further reduce ByteDance's
stake in the company to appease U.S. officials who want to see the
Chinese firm loosen its grip on the video app.
The filing of the IPO would be on a U.S. stock exchange and could come
in about a year, the sources said.
There is no certainty over whether Trump will sign off on the agreement.
It was also not immediately clear what assets TikTok Global would own
beyond the app's assets in the United States. ByteDance has offered to
create 25,000 new U.S. jobs with TikTok headquartered in the United
States as it seeks to win Trump's blessing for a deal, Reuters has
reported.
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Flags of China and
U.S. are seen near a Bytedance logo in this illustration picture
taken September 18, 2020. REUTERS/Florence Lo/Illustration
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It was also not clear whether ByteDance could present the deal to China as
keeping majority ownership of TikTok. Chinese officials have said they do not
want ByteDance to agree to a forced sale, and the company's proposal to the
White House this week called for it to retain majority ownership of TikTok.
The board of TikTok Global would include a national security director, who will
be approved by the U.S. and chair a security committee overseeing the protection
of user data, according to a person familiar with the matter.
The term sheet will grant Oracle the right to inspect TikTok's source code and
includes numerous provisions to ensure data security and requirement that all
U.S. users data remains in the United States housed by Oracle, the source said.
It is not clear what Oracle or Walmart will pay for a stake. Oracle, Walmart and
Treasury did not immediately comment.
Meadows said on Thursday that the administration is still looking at details of
the deal and whether it meets national security thresholds. Meadows said if
TikTok remains predominantly Chinese-run under the Oracle deal, that would not
meet Trump’s objectives.
CHINA APPROVAL
ByteDance said on Thursday it would need China to approve the proposed deal with
the White House, indicating how its bid to stave off a ban in the United States
could be further complicated.
As many as 40% of Americans back Trump's threat to ban TikTok if it is not sold
to a U.S. buyer, a Reuters/Ipsos national poll found last month. Among
Republicans - Trump's party - 69% said they supported the order, though only 32%
expressed familiarity with the app.
The White House has stepped up efforts to purge what it deems "untrusted"
Chinese apps from U.S. digital networks. Beyond TikTok, Trump has also issued an
order prohibiting transactions with Tencent Holding Ltd's messenger app WeChat.
Earlier this year, Chinese gaming company Beijing Kunlun Tech Co Ltd sold gay
dating app Grindr, bought in 2016, for $620 million after CFIUS ordered its
divestment.
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ByteDance acquired Shanghai-based video app Musical.ly - whose user base was
largely American - for $1 billion in 2017 without seeking CFIUS approval,
relaunching it as TikTok the following year. Reuters reported last year that
CFIUS was investigating TikTok.
(Reporting by David Shepardson in Washington, D.C., Stephen Nellis in San
Francisco and Echo Wang in New York; Additional reporting by Steve Holland in
Mosinee, Wisconsin; Editing by Cynthia Osterman and Stephen Coates)
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