(Bloomberg) – Zhang Yiming, founder of TikTok parent company ByteDance Ltd., shows Donald Trump that he also knows something about dealmaking.
In its proposal to partner with Oracle Corp. to address US security concerns with the hit video app, Chinese entrepreneur Trump is offering something that the president has already declared unacceptable. The question now is whether Trump rejects the proposal, agrees or perhaps most likely to the man behind ‘Art of the Deal’, opens negotiations on a compromise.
The president has said that TikTok should be sold to a US owner ̵
The final details are in motion, but ByteDance’s venture investors can also take shareholdings in the TikTok business. It is also possible that the Chinese parent will try to retain full ownership of the device, according to a 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 US Treasury Secretary in which he said the administration should “immediately reject” the partnership and press the Chinese parent to work out a “more acceptable solution.”
Zhang’s introductory gambit may simply aim to buy himself more time as he tries to survive the clash between the world’s two superpowers. He starts from a tough stance to open negotiations and avoid an immediate shutdown of TikTok. It’s a lesson that could have been taken directly from Trump’s memoir of his days in real estate.
“The worst thing you can ever do in a deal seems desperate to achieve it,” the president wrote in his best-selling autobiography with Tony Schwartz. “It makes the other guy smell blood, and then you’re dead.”
Zhang offers a few things that are likely to resonate with Trump. Treasury Secretary Steven Mnuchin said Monday that ByteDance’s proposal would create 20,000 jobs and bring the United States to the headquarters of “TikTok Global,” presumably the entire video app’s international operation. Trump has made bringing jobs to the country a cornerstone of his campaign as he heads toward the November presidential election.
Zhang has also joined Oracle co-founder Larry Ellison, an ardent supporter of the president who appears to have his confidence. This alliance may persuade Trump to accept an agreement from Oracle that he would not from another company.
Trump called Ellison “a huge guy” in August and praised him again on Tuesday.
“I have great respect for Larry Ellison,” the president said. “He’s someone I know. He’s really been a great guy for a long time.”
Oracle’s proposal lacks a payment to the U.S. government, which the president has insisted on 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 crack down on China. He signed an executive order banning the app in the U.S. on Sept. 20, and also decided that ByteDance should sell the video app’s U.S. assets by mid-November under an order from the U.S. Foreign Investment Committee or CFIUS.
QuickTake: All about Cfius, Trump’s watchdog on China Dealmaking
On his way into the last weekend in August, Zhang had leaned toward a proposal from Microsoft Corp., where he had briefly worked. The deal required software giant and partner Walmart Inc. should buy TikTok US in full.
But the Chinese government intervened at the last minute with a new set of restrictions on the export of artificial intelligence technology, including those used in the app. Beijing insisted that its regulators also approve any asset sale from ByteDance.
China’s move was seen as an attempt to give Zhang greater leverage. He could not give too much to the Trump administration, otherwise Beijing would not sign.
Instead, Zhang turned to Ellison and Oracle. Redwood City, California, is best known for its enterprise software and has a growing cloud computing business that can be used to host videos and strong technical capabilities to secure user data. Ellison is also known for her tough fighting ability. When Hewlett Packard fired his CEO for an allegedly inappropriate relationship, Ellison called it – publicly – “the worst staff decision since the idiots on the Apple board fired Steve Jobs.”
What Zhang and Ellison did does not look like the deal the Trump administration had expected. Instead of buying the company directly, Oracle would make an investment in a newly restructured TikTok, said people familiar with the proposal. At least two shareholders in TikTok’s Chinese parent company, General Atlantic and Sequoia Capital, would take shares in the new business, said one of the residents, who all asked not to be identified because the terms have not been finalized.
“Based on the information we currently have about the Oracle agreement, I can not say that I am very 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.”
Still, Mnuchin made it sound as if the proposal is worth taking seriously.
“We need to make sure the code is, one, secure, US data is secure, phones are secure, and we’ll look into having discussions with Oracle over the next few days with our technical team,” Mnuchin told CNBC during an interview early Monday.
Although TikTok’s data is stored by Oracle in the US, ByteDance can retain some control over the app’s algorithms, the computer code behind what the service uses to select, and which videos are shown to which users. If TikTok’s algorithms remain in the hands of ByteDance, they risk being manipulated by Beijing.
“CCP has a huge leverage over this company, and that means that it would be trivially easy for CCP to force ByteDance to very subtly push up or promote content that e.g. Would be a priority for a presidential candidate, ”Ryan said.
Eventually, Zhang circulated back to propose a transaction similar to the one he originally offered to take on U.S. control. ByteDance had been willing to set up a global headquarters for TikTok with a separate board, though he would always retain his ownership.
Perhaps the Chinese entrepreneur ultimately decided he could live with the serious consequences of a ban. Trump may be able to shut down TikTok in the United States, but Zhang will maintain full ownership elsewhere – and may return to the country in the future if the political environment changes.
It’s a mindset that Trump may understand.
“It has 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 the worst – if you can live with the worst – the good will always take care of itself.”
(Updates with Trump comments at the time of decision)
For more articles like this, visit us at bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.
© 2020 Bloomberg LP