TikTok talks show how Trump’s deal-making style can cause collateral damage

U.S. President Donald Trump faces reporters as he departs for campaign travel to Ohio from the South Lawn at the White House in Washington, September 21, 2020.

Carlos Barria | Reuters

Maybe the simplest way to think about what’s happening with TikTok is collateral damage.

The Trump administration has used technology companies as a battleground for geopolitical warfare with China. It blocked Broadcom’s attempt at buying Qualcomm in 2018 over arrangements with “third party foreign entities.” It banned U.S. government agencies from doing business with Chinese telecom companies ZTE and Huawei. It forced a Chinese company that acquired LGBTQ dating app Grindr to sell the application.

TikTok is just the latest example of another way the Trump administration can assert its leverage over China, which has limited or prohibited American companies from operating within its borders for many years. 

President Donald Trump has claimed the service, which has more than 100 million U.S. monthly active users, is a threat to national security. TikTok collects a lot of information about U.S. users, including sign-up information and their activities on the service, and could share this information with the Chinese government.

Trump used the Committee on Foreign Investment in the United States (CFIUS) — his weapon of choice to thwart Chinese acquisitions and operations — to force a sale of the company by Nov. 15, and threatened to ban it in the U.S. if a sale didn’t happen.

TikTok, which was majority owned by Chinese company ByteDance, claims it doesn’t share data with the Chinese government. It has spent months in meetings with Trump administration officials pleading its case. According to two people familiar with the company’s thinking, some TikTok executives viewed Trump’s actions as retaliation for a political prank in June, when teenagers organized over the service to reserve seats a Trump rally in Tulsa, Oklahoma, and didn’t show up, leaving thousands of seats empty; another theory at the company is that the president’s trade advisors were taking a cue from India’s ban of TikTok in June as a new way to needle China. A TikTok spokesperson declined to comment.

Even if the U.S. government has reason to suspect TikTok is lying and has shared data — or could share data in the future — the current brokered deal of selling minority stakes in TikTok to Walmart and Oracle while setting up a new cloud computing deal with Oracle falls far short of the original threat.

The result resembles something from Trump’s famous book “Art of the Deal”: Talk big, then end on a compromise.

“It started obviously simply — to say we want to protect the security of Americans from anything that could happen to them by using TikTok,” IAC Chairman Barry Diller said Tuesday on CNBC’s “Squawk Box.”

“It has now morphed into a ludicrous game-match between tossing ownership here, control there….Its original aims are out the window. In has just come a whole political mishmash.”

Unintended consequences

The problem with negotiating in this manner is collateral damage — loosely defined as a unintended destruction caused from battle. There’s also an associated butterfly effect, where one simple event causes a chain reaction of unanticipated consequences that isn’t necessarily harmful, but nonetheless changes the lives of thousands.

For example:

Microsoft. According to the New York Times, Microsoft had quietly been talking to TikTok earlier this summer about a minority investment, accompanied by a cloud deal. But Trump’s push for a full sale of TikTok’s U.S. operations pulled Microsoft into talks to buy the full company.

When the Chinese government hit back at the U.S. government just before a deal was set to be announced, saying it would need to approve terms, Microsoft backed away.

Oracle is now going to end up with what Microsoft was negotiating for in the first place. If Trump had said from the outset that he would be amenable to a limited stake sale, a new TikTok Global board with American representation, and finding a “trusted technology partner” — the role Oracle has agreed to — it’s likely Microsoft would have nailed down that deal in July.

Microsoft was apparently hungry to do a big deal regardless. It subsequently decided to acquire ZeniMax Media, the company that owns well-known video game publisher Bethesda, for $7.5 billion in cash, its third-biggest deal ever. 

Walmart. When ByteDance was still looking for other bidders to compete with Microsoft, SoftBank Chief Operating Officer Marcel Claure, sensing an opportunity to take a stake in a jewel asset, put together a consortium with Google and Walmart to tempt ByteDance and the Trump administration, CNBC previously reported. Walmart’s image as an all-American company could be useful to win approval. 

Walmart became increasingly interested in TikTok after joining that consortium, realizing the e-commerce potential, according to people familiar with the matter. When Microsoft backed out, Walmart shifted into an alliance with Oracle and ended up taking a 7.5% stake in TikTok in the deal approved last weekend.

If Trump administration had originally said it was open to a partial sale, Walmart might never have gotten involved.

Google. Google’s main interest in an investment was to secure a cloud deal with TikTok, giving it another marquee consumer company to add to its list of cloud customers alongside Snap

But once the Trump administration got involved, sources say, the U.S government wanted the lead buyer to be a technology company. Google felt that antitrust concerns would preclude it from leading such a deal, so it quietly withdrew. 

The company, which is the number-three U.S. cloud player behind Microsoft and Amazon, can’t be pleased to see an even smaller cloud laggard like Oracle end up with a cloud deal through a minority investment.

Kevin Mayer. Former Disney+ chief Kevin Mayer joined TikTok as its CEO in May and was almost immediately pulled into the controversy. When the Trump administration began pushing for a full sale, Mayer got Oracle involved as a counter-bidder to Microsoft, in part to boost the value of TikTok by adding competition.

While Microsoft was discussing total ownership of TikTok’s U.S., Canadian, Australian and New Zealand operations, TikTok’s current investor base wanted to keep their investments in the video-sharing application, which has massive growth potential. In Oracle, they found a partner who would allow them to roll over their stakes in the company. That proved wise when ByteDance began to get back-channel hints from Trump administration officials that Trump would be willing to sign off on a something that wasn’t a full sale, according to people familiar with the matter.

Caught in the rhetoric, Mayer decided to quit TikTok rather than joining Microsoft or Oracle as a division head of a non-global TikTok. When news leaked that he planned to quit upon the announcement of a sale, he addressed and verified the news, agreeing to step down as CEO immediately

But that full sale never happened. If the news hadn’t leaked that Mayer was planning to quit, he would likely still be CEO today. There would have been no reason to leave. TikTok remains a global company. 

The spastic messiness may not end. If the Chinese government rejects the current TikTok deal, everything could be back on the table. 

If this is the art of the deal, the final painting is going to look like something from Jackson Pollock

Watch: Tiktok-Oracle deal reveals U.S.-China tensions

Source

Leave a Reply

Your email address will not be published. Required fields are marked *