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Breakingviews

Breakingviews - TikTok deal rings alarm on M&A reviews

A person holds a smartphone as Tik Tok logo is displayed behind in this picture illustration taken November 7, 2019. REUTERS/Dado Ruvic/Illustration

SAN FRANCISCO (Reuters Breakingviews) - A slimmed down deal for TikTok will ring in the ears of cross-border dealmakers. The ByteDance unit hopes to avoid a sale by forging a tech partnership with Oracle. It hardly amounts to the clean break from its Chinese owners that U.S. President Donald Trump demanded, which is why several Republican senators on Wednesday told the White House they’re against the deal. But political maneuvering had a big influence. That makes Washington approvals even less predictable for would-be foreign buyers of U.S. assets.

The TikTok saga was already complicated when Trump in August ordered a ban of the U.S. unit and then a sale, rattling not only ByteDance but U.S.-based private investors Sequoia Capital and General Atlantic as well. Before then, ByteDance thought it had a deal to address what Trump considered national security concerns about data that American users fork over to the video-sharing network. It had lined up a deal to sell a minority stake in TikTok to Microsoft.

Trump’s orders upended that investment as he sought a full divestment of TikTok’s U.S. assets. Microsoft scrambled to restructure its deal to meet those terms while Trump’s move left an opening for Oracle, whose co-founder Larry Ellison is a big Trump supporter. The company, which struck an arrangement with ByteDance this week after Microsoft’s interest was rejected, is willing to take on a less intrusive role, effectively being the company’s warehouse for data.

Over the weekend, ByteDance submitted a proposal to the Committee on Foreign Investment in the United States to approve this plan. Ellison’s firm may also take a minority stake in TikTok, which in effect mirrors the deal that Trump had rejected with Microsoft. CFIUS looked over the deal on Tuesday, according to people familiar with the matter.

Trying to handicap the committee’s decisions plays a central part when dealmakers and their clients start to pull transactions together. Its national-security mandate is clear but the application of its powers has proved somewhat subjective. Dealmakers have started to joke that the best way to close a transaction is to hire a Trump-favored lawyer.

If CFIUS approves the ByteDance-Oracle combination and Trump lets it go, having demanded something different, politics will become even more of a factor in deals. The bipartisan backlash against China makes this a problem beyond the current president. If Microsoft can’t keep the White House sweet, what foreign company can?

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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