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MarketScreener Homepage  >  Equities  >  Nyse  >  Oracle Corporation    ORCL

ORACLE CORPORATION

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TikTok Ban Zero Hour: Haggling with Trump, Doubts in China and a Deal in Limbo

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09/21/2020 | 06:01pm EDT

By Michael C. Bender, Georgia Wells, Miriam Gottfried and Aaron Tilley

After months of maneuvering over the future of TikTok, it took a pair of 11th-hour phone calls with two of America's most powerful executives to persuade President Trump to agree to a tentative deal.

Key to getting the president on board with the idea, which involved Oracle Corp. and Walmart Inc. taking stakes in a new TikTok based in the U.S., was a thinly sketched-out plan to create a $5 billion education fund, described by people involved as a gesture to placate Mr. Trump. The provision came so late that when it was announced, TikTok and its Chinese parent company weren't aware it was part of the plan.

The last-minute wrangling came at the end of a week in which a small group of executives worked with officials led by Treasury Secretary Steven Mnuchin to make sure a proposal would pass muster with Mr. Trump. The president has threatened to ban the Chinese-owned app as a national security risk, and the talks were aimed, essentially, at Americanizing TikTok. The group was making headway, but the outcome still wasn't clear.

On Friday Mr. Trump jumped on the phone with Oracle Chairman Larry Ellison and Walmart Chief Executive Doug McMillon. Mr. Ellison, a Trump supporter and one of the world's richest people, spent most of the time getting the president comfortable with the deal structure and Oracle's role in addressing his security concerns, according to people familiar with the matter.

The executives talked with Mr. Trump again on Saturday, the people said. Mr. Trump still wanted something additional, which led to the education initiative, details of which remained unclear. The president disclosed his support in principle for the tentative deal within hours -- though it still needs final approval from all parties.

Over two months of negotiations with little precedent in American business history, a mix of powerful personalities, corporate strategies and geopolitical machinations have intertwined to decide the fate of an app that 100 million Americans use to share short dance clips and amusing videos. At the center has been the U.S. president and his desire to bring at least the U.S. operations of China's most globally successful tech platform under American control.

Little about the negotiations was routine, including the outcome. Investment bankers normally enmeshed in corporate deal making weren't involved, one person said. And if the U.S. succeeds in wresting control of a big part of one of China's national success stories, that would likely trigger further consequences in the escalating U.S.-China battle for technological supremacy.

As in the days leading up to White House approval in principle, much remains uncertain. Details still need to be hashed out and approved by U.S. officials, including the ownership stakes and TikTok's valuation, which could be as much as $60 billion. Mr. Trump reiterated on Monday he expects the new company to be U.S.-controlled. "If we find that they don't have total control, then we're not going to approve the deal," he said on Fox News.

On Monday, participants were openly disagreeing over the ownership structure of the proposed new company, TikTok Global. A spokesman for TikTok parent ByteDance Ltd. said it would retain an 80% stake outright, while Oracle said on Monday morning the 80% would be distributed proportionally to ByteDance's current shareholders, which include U.S. investors, and "ByteDance will have no ownership in TikTok Global."

China's government has yet to give its nod. Officials there didn't respond to requests for comment. Hu Xijin, editor in chief of the Global Times, a Communist Party-backed tabloid, said Monday on Twitter he thought Beijing wouldn't approve the current agreement. He said it "would endanger China's national security, interests and dignity." Mr. Hu had earlier held up the U.S.'s restructuring of the deal as a model that should be promoted globally.

The arrangement announced over the weekend would transfer TikTok's data to U.S. servers with enhanced security run by Oracle and overseen by Oracle CEO Safra Catz, who was once considered for Mr. Trump's national security adviser. Oracle has promised that TikTok users' data would be secure.

The structure looks different from Mr. Trump's initial demands. It could leave TikTok's Beijing-based parent, ByteDance, as a big shareholder in the new U.S.-based company. The preliminary agreement also doesn't call for the transfer of ownership of TikTok's vaunted algorithms, the app's secret sauce and a prized Chinese asset.

Mr. Trump put TikTok in his crosshairs in July when his administration said it might ban the app for Americans because of concerns its data could be accessed for ill purposes by the Chinese government, something TikTok has said wouldn't happen. He later issued an executive order setting a deadline for mid-September to come up with a deal, and a separate 90-day deadline to make it final.

For most of the ensuing weeks, Microsoft Corp. seemed to be in pole position. It would have bought TikTok's operations in the U.S. and three other countries. Microsoft CEO Satya Nadella spoke to Mr. Trump on Aug. 2 and said the company would work toward a deal.

Walmart later teamed up with Microsoft in that effort. Walmart started talking with the ByteDance chief executive after Mr. Trump made his demands, working to forge a closer relationship with ByteDance in the U.S. and globally, aiming to build its advertising and e-commerce businesses through the platform, said a person familiar with the situation. Mr. McMillon let ByteDance and Bill Ford, CEO of ByteDance investor General Atlantic, know Walmart was interested in being part of the deal regardless of the other buyers, said this person.

As the deadline neared, Microsoft's prospects faded. China's government in late August issued new restrictions on the export of artificial-intelligence technology, signalling that TikTok's core algorithms couldn't be included as part of a deal. Beijing indicated to ByteDance that it didn't want a U.S. company to control TikTok's technology and it didn't want a forced sale, one person familiar with the situation said.

It also became increasingly clear that Zhang Yiming, founder and chief executive of ByteDance, didn't want to give up control of TikTok, which had enabled him to build a global hit unlike any other Chinese tech entrepreneur, according to people familiar with his thinking. ByteDance's U.S. investors, too, were unhappy that their golden ticket might be snatched away and sold to other American owners, one of the people said.

Instead, Oracle and ByteDance put together an offer they believed would satisfy technical concerns from the Trump administration, even if it fell short of a full sale. Whereas Microsoft was really interested in control, Oracle was willing to be a minority investor, and was primarily focused on winning a marquee customer for its cloud business, according to people familiar with the companies. Oracle had a history of working with the U.S. government, so ByteDance and its investors saw the company as being more aligned with its interests.

About 10 days ago, ByteDance brought the proposal to Mr. Mnuchin, who had spent months trying to find a way to keep TikTok from being banned in the U.S. while addressing security concerns inside the administration. The fight had become a reprise of roles during the China trade negotiations, as Mr. Mnuchin again jousted with Peter Navarro, a White House trade adviser, in front of the president.

Over the second weekend of September, ByteDance told Microsoft it was out, and that Oracle was its pick. Walmart indicated it still wanted to participate in a deal.

In the final week of jostling, the participants tried to fine-tune an agreement they thought could win a green light from Mr. Trump and China's leadership. The negotiations were conducted by a tight-knit group that, according to a person familiar with them, included Mr. Mnuchin, Oracle's Mr. Ellison and Ms. Catz, Walmart's Mr. McMillon, Mr. Zhang of ByteDance and Mr. Ford of ByteDance investor General Atlantic.

The initial proposal included many of the core elements of what ended up being approved by the president, the people said: TikTok Global as a U.S.-based entity, with Oracle vouching for its data security, and a plan to take the new company public in the U.S. that would give it majority non-Chinese ownership. Mr. Ford proposed a requirement to fill the new company's board with U.S. citizens except for Mr. Zhang, said people familiar with the situation.

A term sheet went to the secretive government panel that had been reviewing the security concerns about TikTok, the Committee on Foreign Investment in the United States.

Cfius pushed the group to firm up a commitment that TikTok would go public within 12 months, to settle on its board composition and to describe the ownership of Oracle and Walmart and how that would be structured.

Talks were jarred repeatedly by Mr. Trump's off-the-cuff remarks. Early on, some participants were unsure about which deadline they had to meet. Mr. Trump had said publicly the deadline was Sept. 15, a Tuesday, but Mr. Mnuchin the day before clarified they had until the following Sunday.

Mr. Mnuchin was initially skeptical of the Oracle deal, and unsure the president would accept anything less than a sale of TikTok's U.S. operations.

Company executives stressed to Mr. Mnuchin there were no other options, apart from banning the company. Mr. Mnuchin came around, and started pitching the president on a deal he believed would address U.S. national security concerns and also satisfy the Chinese government, and the Chinese investors.

(MORE TO FOLLOW) Dow Jones Newswires

09-21-20 1901ET


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Financials (USD)
Sales 2021 39 859 M - -
Net income 2021 10 204 M - -
Net Debt 2021 30 599 M - -
P/E ratio 2021 18,1x
Yield 2021 1,61%
Capitalization 180 B 180 B -
EV / Sales 2021 5,29x
EV / Sales 2022 5,09x
Nbr of Employees 135 000
Free-Float 61,9%
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Safra Ada Catz Chief Executive Officer & Director
Lawrence Joseph Ellison Chairman & Chief Technology Officer
Michael J. Boskin Independent Director
Jeffrey O. Henley Vice Chairman
Jeffrey S. Berg Independent Director
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