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How ByteDance's CEO baulked at selling TikTok's US business

Concerns among backers led Zhang to opt for sale of stake to Oracle, rather than an outright divestment: sources

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In arguing for its bid, Microsoft upset Mr Zhang, because it referred to TikTok as a security risk it could fix, the sources add.

New York

BYTEDANCE founder and CEO Yiming Zhang's decision to drop his pursuit of a sale of TikTok's US operations to Microsoft Corp in favour of a partnership with Oracle Corp was the culmination of pressure from the Beijing-based firm's investors as it searched for a deal to appease the United States and China, according to people familiar with the deliberations.

Concerns among major ByteDance backers such as Sequoia and General Atlantic over the financial hit of selling the popular short-video app in the US for less than what it is worth led Mr Zhang to opt for the sale of only a stake to Oracle, rather than an outright divestment, the sources said.

It is a risky strategy. President Donald Trump has made it clear he wants to see an outright sale of TikTok to a US technology firm, amid concerns among national security officials that US user data could be passed on to China's Communist Party government. He has threatened to ban TikTok in the US as early as Sept 20 if ByteDance does not comply.

China also got involved in the process last month, updating its export control rules to give it a say over the transfer of technology, such as TikTok's recommendation algorithm, to a foreign buyer. Chinese officials have said ByteDance should not be coerced by the US into a deal.

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Microsoft executives grew frustrated over the course of the past week as ByteDance became unresponsive to the Redmond, Washington-based company's US$20 billion-plus bid for TikTok's US business, three of the sources said. The bid also allowed for future payments based on TikTok's performance, one of the sources added. This offer fell short of ByteDance investors' expectations, the sources said.

In arguing for its bid with the Trump administration and US lawmakers, Microsoft upset Mr Zhang, because it referred to TikTok as a security risk it could fix, the sources added. ByteDance has maintained that its ownership of TikTok presents no such risk.

All the while, Sequoia and General Atlantic were working with Oracle on an alternative deal that would avert an outright sale, according to the sources. Concerned over ByteDance's lack of engagement, Microsoft asked the Chinese company whether it had lost out in the race for TikTok's US business, one of the sources said.

Microsoft also asked if it could change the deal structure to match Oracle, the source added. ByteDance responded it would choose Oracle even if Microsoft offered the same structure and terms, the source said. Oracle had been working on the potential deal with the ByteDance investors for several weeks, and had made them and Mr Zhang more comfortable about their partnership, according to the source.

On Sunday, Microsoft announced ByteDance had rejected its bid to acquire TikTok's US business. This account of how ByteDance picked Oracle as its partner for the TikTok deal is based on interviews with six people with knowledge of the discussions.

ByteDance has worked feverishly in the last few days on a deal proposal that would allow the Chinese company to retain a minority stake in TikTok while addressing US security concerns, the sources said. Mr Zhang is referring to this deal in discussions with other ByteDance executives as a restructuring, the sources said. Oracle is in negotiations to take a sizable minority stake in TikTok's US business, with the remainder owned by some large ByteDance investors, including General Atlantic and Sequoia, the sources said. Oracle would also take over the management of TikTok's user data in the US and be responsible for its safety, they added.

It is not clear what valuation this deal would infer for TikTok's US business. The proposal calls for the Committee on Foreign Investment in the United States to approve board directors at TikTok US, as well as relationships with major vendors, the sources added. REUTERS

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