File picture: Reuters
File picture: Reuters

TikTok sale deadline looms but proposed deal hasn't moved forward

By The Washington Post Time of article published Nov 12, 2020

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By Rachel Lerman, Jeanne Whalen

TikTok has one final, major hurdle to overcome in its battle with the Trump administration over the video app's future in the U.S. - and the deadline is looming with no clear solution.

TikTok's Chinese parent company, ByteDance, is under a presidential order to divest from the app here by Nov. 12 - Thursday. But the deal it proposed, to take on investment from Oracle and Walmart and set up a new company, has yet to receive the green light from the government agency overseeing the negotiations.

And with no immediate threat of getting banned in the country after courts halted the administration's shutdown order, TikTok is in a less precarious position and may be granted more time to figure out a path forward that avoids a wholesale sell-off in the U.S.

For months, the app was thrust into the spotlight of the administration's China trade agenda. But it has seemingly fallen off the radar as Trump and his team focused on the election and coronavirus.

The video app on Tuesday asked a court to intervene and give it more time to reach a deal with the government, saying in a filing that it wants the divestment order to be vacated. TikTok said it asked a federal appeals court in D.C. for a "review of actions" of the government committee that demanded the divestiture, saying it has provided no "substantive feedback" on a deal the company has proposed.

After months of threatening to ban TikTok on national security grounds, President Trump issued an order in August requiring ByteDance to sell its U.S. operations by Nov 12. In September, the Trump administration announced it would essentially ban TikTok by that same date unless the company sold its U.S. assets.

But first a federal judge in D.C., and then a federal judge in Pennsylvania, halted the bans that would have essentially shutdown the app. The D.C. judge, Trump-appointee Carl Nichols, suggested in his ruling that the ban would "likely exceed" the bounds of the law.

That leaves, for the moment, one more avenue for the Trump administration to restrict the app - and it will be less dramatic, but likely harder for TikTok to avoid.

Trump issued his divestiture order after a review by the interagency Committee on Foreign Investment in the United States (CFIUS), which is chaired by the Treasury Department. TikTok said in its Tuesday court petition that its due process rights were violated when CFIUS "truncated" its review and referred the matter to Trump for his sign-off.

TikTok "had hoped it would not be necessary to seek judicial intervention," but since the deadline is approaching, it asked the court to step in, it wrote in its filing.

The company said it asked the government for a 30-day extension, which was a possibility under the order, but it hadn't been granted by Wednesday.

If TikTok doesn't get the extension and the deal is still not finalized by Thursday, the government would be able to go to court to sue to force the sale, said Robert Chesney, an associate dean at the University of Texas School of Law.

"It's not like a bunch of U.S. Marshals show up and make everyone at ByteDance leave," Chesney said. "You cant unscramble the egg, at least not easily."

It's unclear if the government would go through with a lawsuit, especially since TikTok has proposed a deal it believes would satisfy the government's security concerns. The Treasury Department did not comment.

TikTok has been scrambling to negotiate with investors and suitors to resolve the fight, and it struck a preliminary deal to spin off its U.S. operations with investments from Oracle and Walmart. The deal would create a new TikTok Global company headquartered in the United States, with Walmart and Oracle as investors, according to the companies.

It would also make Oracle a technology partner that secures TikTok's U.S. data. And it wouldn't completely cut out ByteDance - the company's investors, which includes its founder and some employees, would still hold stakes in the new entity.

Trump gave his conditional blessing to that proposal in September, but a TikTok spokeswoman said the company hasn't been able to finalize the deal because of the government's process.

Even if ByteDance isn't required to immediately divest the U.S. operations of TikTok, it still will likely need to address the privacy and data-sovereignty concerns raised by the Trump administration and others. India banned the app in June, citing a threat to national security and the privacy of Indian citizens. European data protection watchdogs launched a probe into TikTok's privacy policies in July.

If the CFIUS-driven deal with Oracle and Walmart isn't consummated, ByteDance would likely need to find another way to address those regulatory concerns if it ultimately hopes to sell shares in TikTok to the public at the highest possible valuation.

Casting more uncertainty on the situation is the impending end of the Trump presidency, which has been instrumental in moving the TikTok restrictions forward. President-elect Joe Biden might not be as willing to crack down on the app, though it is unclear if he would expend political capital to overturn the orders. A spokesman for the Biden campaign team said it didn't have anything to share on its TikTok plans.

TikTok has vigorously resisted the Trump orders in court and in public statements, insisting it is not a security risk and that it keeps data private. The U.S. government said TikTok is a national security threat because the data it collects on U.S. customers could be turned over to the Chinese government.

Lawyers said the ban injunctions could make it hard for the government to enforce its order to sell the U.S. operations by mid-November. James Lewis of the Center for Strategic and International Studies, a think tank in Washington, D.C., said it seems likely TikTok would be issued the 30-day extension. He said ByteDance and the Chinese government, which must approve ByteDance's spinoff plans, are unlikely to ignore the order.

"I expect this is the pressure on ByteDance that keeps the deal moving forward," he said.

The Washington Post

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