TikTok deal puts U.S. owners in charge, but Chinese parent company still has some say

Key Points
  • President Donald Trump on Monday said that Oracle and Walmart will have "total control" over TikTok Global, a company to be formed if a deal between Oracle, Walmart and TikTok's parent company, ByteDance, is approved.
  • But the deal isn't structured that way: Instead, Americans will hold four of the five seats on TikTok Global's board, with ByteDance's CEO holding the fifth seat.
  • People familiar with the deal said that they think TikTok Global will be 53% American-owned if you count the American investors that own 41% of ByteDance along with Oracle's and Walmart's stakes.
ByteDance CEO and founder Zhang Yiming.
Gilles Sabrie | Bloomberg | Getty Images

Following the weekend's announcement that Oracle will take a 12.5% stake in TikTok and run cloud services and security for the app, President Donald Trump characterized the deal as a win for the U.S. by making TikTok a company that's owned and controlled by Americans.

This is despite the fact that Chinese investors and companies will still own a large percentage of TikTok and have a say on the board of a newly created company based in the U.S. called TikTok Global.

Speaking on Fox News on Monday morning, Trump said the Chinese won't have anything to do with TikTok after the deal goes through, and that Oracle and Walmart, which said over the weekend that it will take a 7.5% stake in TikTok, will have "total control" over TikTok.

Oracle's Executive Vice President Ken Glueck released a statement to CNBC shortly after Trump's remarks that said Americans will have a "majority" of control over TikTok Global. Glueck's statement also said TikTok's Chinese parent company, ByteDance, will "have no ownership" over TikTok Global.

"Upon creation of TikTok Global, Oracle/Walmart will make their investment, and the TikTok Global shares will be distributed to their owners. Americans will be the majority and ByteDance will have no ownership in TikTok Global," Glueck's statement said.

Meanwhile, ByteDance said Monday it will own about an 80% stake in TikTok Global.

So what's going on? And why is there so much disparity between what each side is saying?

How Oracle sees the deal: According to people familiar with the matter, Oracle's Glueck said in his statement that the company will be owned and controlled by an American majority because:

  • U.S. citizens will hold four of the five TikTok Global board seats, and
  • If you count U.S. venture capital firms such as Sequoia, General Atlantic and Tiger Management, then about 53% of TikTok Global's shares will be held by either American investors or two American companies, Oracle and Walmart. This point itself is somewhat debatable: Although venture investors often exercise some control over the companies they invest in, the actual capital they invest usually comes from outside limited partners, who need not be based in the United States.

Oracle and Walmart don't view ByteDance as an entity as having a stake in TikTok Global. Instead, they view ByteDance's individual shareholders as the ones with stake.

What is ByteDance?
What is ByteDance?

How ByteDance sees the deal:  ByteDance isn't separating its American VC investors from the rest of its stakeholders, which is why it said it will own 80% of TikTok Global if the current deal goes through. Moreover, ByteDance's CEO and founder Zhang Yiming, who also owns a stake, will have a TikTok Global board seat, so there will at least be some governance coming from ByteDance's point of view, even if Yiming is outnumbered on the board four to one.

Another complicating factor: About 14% of ByteDance is owned by other international investors outside the U.S. and China, mostly investors in Europe.

Finally, while Oracle will be able to look at TikTok's source code and block any updates that seem problematic from a security standpoint, ByteDance retains control over the TikTok recommendation algorithm, which decides which videos to recommend next and is a critical factor in the app's popularity and virality among U.S. teens.

The bottom line: Trump was wrong when he said on Fox News on Monday that Oracle and Walmart will have total control of TikTok Global, even if you count the U.S. investors in ByteDance.

Specifically, Americans will have a 4-1 majority on the board of TikTok Global, while ByteDance shareholders — which include American, Chinese and international investors — will own a majority of shares in the company. Oracle will own 12.5% of TikTok Global, and Walmart will own 7.5%. ByteDance retains some control over the product's core intellectual property.

In other words, Americans will not have total control of the company from a governance, ownership or technology standpoint.

What Oracle gets

According to people familiar with the matter, Oracle's role in the deal is primarily focused on providing cloud and security services for TikTok Global. Oracle could see a nice return on its investment when TikTok Global goes public in the U.S. within a year, which is also part of the deal. But TikTok Global's IPO could be delayed due to market conditions, one of the people said. The valuation of the deal Trump has approved is about $50 billion, and Oracle will have 12.5% of that. Oracle has not yet said how much it would pay for that stake.

But most important to Oracle is using its TikTok deal to show its prowess in cloud computing, a market dominated by Amazon Web Services and Microsoft's Azure. Oracle earlier this year landed a buzzy new cloud contract with Zoom, and hopes to use the TikTok deal as another model to provide security and cloud services to other companies down the road. Oracle will move TikTok's services from other clouds run by Alibaba and Google to Oracle's cloud, according to a person familiar with the deal.

Oracle also isn't interested in managing TikTok's business, sources said. But Walmart would have more of a say in TikTok Global thanks to its board seat and commitment to beef up TikTok's e-commerce tools as part of its investment.

Waiting on China

The Chinese government will still have to approve the deal, thanks to the country's update to its technology export bans that would require ByteDance to obtain a license from China before it can sell TikTok's algorithms and AI technology to a U.S. company.

But people familiar with the deal said they expect China to approve it because they believe it's structured to work around the latest tech export rules.

— CNBC's Julia Boorstin contributed to this report.

Chinese government expected to approve TikTok deal: Source
Chinese government expected to approve TikTok deal: Source