09/17/2020

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The TikTok Tug of War Takes Another Turn



Trump Approves TikTok-Oracle Deal “In Concept”

This past Friday, the Commerce Department announced restrictions on WeChat and TikTok—two social apps based in China. Both apps were originally scheduled to be shut out of app stores starting yesterday, meaning they would have no longer been available through Apple (AAPL) or Google’s (GOOGL) app stores. Over the weekend, however, US President Donald Trump told reporters on his way to a campaign rally in North Carolina that he gave the TikTok-Oracle deal his blessing, saying he’s approved the agreement “in concept.”

While this saga is still unfolding, it appears Oracle and Walmart will acquire stakes in the US operations of the popular video app. “TikTok Global” will be set up as a new company in which Oracle will own a 12.5% stake. Walmart will own 7.5%, and the new venture will be headquartered in the US. Four of the five board members of the new company will also be American.

In a statement, TikTok said , “Both companies will take part in a TikTok Global pre-IPO financing round in which they can take up to a 20% cumulative stake in the company. We will also maintain and expand TikTok Global’s headquarters in the US, while bringing 25,000 jobs across the country.” Both Oracle and Walmart confirmed this in separate statements. Oracle has said it would provide cloud services that are secure and help the White House feel more comfortable with potential national security concerns. Walmart, meanwhile, said the TikTok Global IPO would take place “in less than 12 months” and that the new company will list on a US exchange.

While these moves were viewed as positive for TikTok users and certain investors, the Chinese government still has to sign off on the agreement

Concerns About the Election and Apple

Outside of the daily twists and turns of the TikTok story, negotiations between the US government, Oracle, and Bytedance (TikTok’s parent company) are high-profile for a number of reasons. One is that roughly 15% of TikTok’s 100 million monthly users will be first-time voters in the election this November. Some analysts have been curious about how a potential ban could impact voter turnout.

Investors are also concerned that if negotiations become more hostile, China could take action against US companies. Facebook (FB), Twitter (TWTR), WhatsApp, and other US-based social media is already banned in China, so there isn’t much more the country can do to hurt US social media giants. However, analysts noted that Apple (AAPL), which has a significant presence in China, could get caught in the crossfire and be subject to investigations and restrictions.

US-China Investments Drop to a Nine-Year Low

Chinese and American companies have been closely following the roller coaster ride of negotiations surrounding TikTok. Businesses in both countries are feeling nervous about rising tensions between Beijing and Washington.

The Chinese government put measures in place to limit capital outflows, and the White House ramped up restrictions and scrutiny for Chinese companies investing in the US. As a result, the total value of direct investment and venture capital deals between the two countries has fallen to a nine-year low. It’s likely that TikTok tensions are far from over, and investors around the world will be anxious to see how they unfold.


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