BREAKINGVIEWS-TikTok sound and fury signifies next to nothing

By Jennifer Saba

NEW YORK, Sept 26 (Reuters Breakingviews) - For all the bellowing over TikTok, the app's ownership saga is on its way to ending in a whisper. Five years after President Donald Trump said he would ban the popular video-sharing service from the United States, he unveiled a deal from the White House that will effectively leave its Chinese owner, ByteDance, running it. Relentless hand-waving about national security, which prompted a law ordering divestiture, led to a broadly preserved status quo.

Trump signed an executive order on Thursday saying there was a framework to sell TikTok's U.S. operations. Vice President JD Vance touted a $14 billion valuation, an astonishingly low sum for the prized asset of a parent company privately assessed at some $330 billion. But then news trickled out on Friday suggesting that new investors will only control a joint venture, not run the app itself.

Under the proposed new structure, TikTok's U.S. business will be split in two. Software developer Oracle ORCL.N, buyout shop Silver Lake and existing ByteDance backers will own most of the half that handles U.S. data and the vaunted algorithm that powers which videos users see as they scroll, according to Reuters. ByteDance will hold a 20% stake in the JV and, more notably, operate the advertising and e-commerce functions of the app.

TikTok will generate between $18 billion and $25 billion in revenue this year, Bernstein analysts estimate. Instagram owner Meta Platforms META.O trades at 9 times sales, per Visible Alpha. On that basis, the U.S. TikTok would be worth some $180 billion. What remains unclear is how much money will be exchanged between the two entities, and how it informs the joint venture's mooted $14 billion valuation.

However the terms shake out, the blueprint flies in the face of a congressional order passed with bipartisan support last year, and which was later upheld by the Supreme Court. TikTok U.S. cannot be owned by ByteDance; unless it's sold, the app is banned. The law was enacted because of concerns about Beijing's influence and its suspected ability to manipulate the information American users consumed.

In 2020, Trump brokered a sale to Oracle and Walmart WMT.N that would have been a more robust separation of TikTok and ByteDance leading at one point to an initial public offering. Now, the parent keeps the front end of the business, which depends on consumer data to sell ads and goods, and will also be the largest minority shareholder of the backend. It's a deal that involved a lot of sound and fury signifying next to nothing.

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CONTEXT NEWS

U.S. President Donald Trump signed an executive order on September 25 to advance a sale of the U.S. operations of ByteDance-owned TikTok to a group of investors at what Vice President JD Vance said was a $14 billion valuation.

Under terms of the transaction, TikTok would be split into two companies, Reuters reported on September 26, citing unnamed sources. Oracle, private equity firm Silver Lake and others will have stakes in a joint venture handling TikTok's U.S. user data and other backend operations, according to the report. ByteDance will hold 20% of the JV and retain ownership of the app's U.S. business.

The executive order said the divestiture requires all recommendation models including algorithms that use U.S. user data to be retrained and monitored by the new joint venture.

The deal structure is still under discussion and could change, Reuters reported.