Bloomberg News reported on the 18th (local time) that China's ByteDance Ltd., the parent company of the video platform TikTok, signed a contract with an investor group led by the U.S. corporation Oracle to establish a U.S. joint venture.
According to Bloomberg, Shou Chew, TikTok's chief executive officer, said in a memo to employees that ByteDance Ltd. signed such a contract with Oracle, Silver Lake and MGX. Silver Lake is a U.S. private equity manager that mainly invests in tech corporations, and MGX is an investment firm founded last year by Abu Dhabi's sovereign wealth funds and the United Arab Emirates (UAE) tech corporation G42.
Chew said, "The transaction is expected to be finalized on Jan. 22 next year, but there is still more work to be done." Once the transaction is completed, the U.S. joint venture will operate as an independent corporation and will control data protection in the United States, content moderation and algorithm security. Chew added that the new U.S. corporation will be under the control of a "seven-member board with a majority of Americans."
According to the memo, the three companies—Oracle, Silver Lake and MGX—will each acquire 15% of the joint venture's equity, for a total of 45%, while ByteDance Ltd. will hold 19.9%. Bloomberg reported that 30.1% of the equity will go to affiliates owned by certain investment firms of ByteDance Ltd.
Reuters explained that under the agreement, ByteDance Ltd. will sell more than 80% of its U.S. asset to U.S. and global investors.
TikTok is highly popular in the United States with about 170 million users, but concerns have been raised that personal information could be transferred to China or used for hacking. In response, in Apr. last year during the Joe Biden administration, the U.S. Congress passed a "TikTok ban law" citing privacy protection and other reasons, putting ByteDance Ltd. at risk of having TikTok's service halted in the United States unless it sold its U.S. business rights to U.S. corporations.
The TikTok issue is also a sticking point in U.S.-China trade talks. U.S. President Donald Trump said in Sep. that he had "reached an agreement with China" regarding TikTok's U.S. business rights. The original deadline for the sale was Jan. 19 this year, but President Trump has repeatedly extended it.
The secret to TikTok's popularity is a high-performance artificial intelligence (AI) algorithm that accurately recommends videos by analyzing users' interests. ByteDance Ltd. is said to provide the U.S. joint venture with a license to use this AI algorithm technology.
Bloomberg reported that the new joint venture will use investor Oracle's computing infrastructure and will train a new AI system using the licensed algorithm. Oracle's share price jumped nearly 6% in after-hours trading on the news of the contract with TikTok.
The Chinese government has not yet said whether it will approve the transaction.