General Atlantic, Sequoia Capital Are Key Drivers in Oracle Bid for TikTok

(WSJ) General Atlantic and Sequoia Capital, two major investors in TikTok’s Chinese parent company, are maneuvering to be part of a deal to acquire the U.S. operations of the popular video-sharing app as it seeks to avoid a ban by the Trump administration, according to people familiar with the discussions.

The investment firms, which own large stakes in Beijing-based ByteDance Ltd., are key drivers behind a possible bid for TikTok by a group including Oracle Corp., the people said. The Oracle group emerged recently as a possible alternative to Microsoft Corp., which said early this month that it was in talks to buy TikTok’s operations in the U.S. and three other countries.

Microsoft had said it might invite some U.S. investors to join its bid. But more recently Sequoia and General Atlantic grew concerned that they wouldn’t have a place in a Microsoft deal and looked for another potential tech partner that could give them a piece of the action, some of the people said. They are now pushing the potential Oracle bid, which quickly won President Trump’s public support, although some of the people said the Microsoft talks are fluid and outside investors could still be included as minority investors in Microsoft’s bid.

Sequoia and General Atlantic both hold seats on ByteDance’s board. Sequoia’s seat is occupied by its China head, Neil Shen, while its efforts in the U.S. to participate in an acquisition are being led by Global Managing Partner Doug Leone. General Atlantic’s effort is led by its chief executive, Bill Ford, who represents his firm on ByteDance’s board. The investment firms have two points of interest that potentially conflict: their obligation as board members to maximize the value to ByteDance of its prized asset, and trying to buy into TikTok in the U.S. at a good price to capitalize on its potential.

ByteDance has been under pressure to reach a deal to sell TikTok’s U.S. arm ahead of a 45-day deadline the White House imposed in an Aug. 6 executive order that bans the app—which the Trump administration says poses an economic and national-security threat to U.S. interests—if it isn’t sold to U.S. buyers. A subsequent presidential order set a 90-day deadline for any transaction to be completed.

Bidders have been asked to submit offers by the end of the week, and one of the parties could enter exclusive negotiations soon, according to people familiar with the matter. It isn’t clear that a sale will happen, however. TikTok filed a lawsuit Monday challenging Mr. Trump’s initial executive order, saying his administration failed to follow due process in issuing it.

At least three camps have been circling a possible TikTok deal. In addition to Microsoft and the Oracle group, Twitter Inc. also had preliminary talks about a potential combination, people familiar with those discussions said.

Twitter remains interested but its approach hasn’t made significant headway, the people said.

Microsoft’s discussions are more advanced than any others, some of the people familiar with talks said—potentially a critical advantage given the tight timetable and the complexity of the negotiations, especially as it relates to guaranteeing the companies could satisfy U.S. national-security concerns. Microsoft has said it aimed to complete discussions with ByteDance no later than Sept. 15, adding there is no certainty it would be able to conclude a deal.

TikTok representatives have engaged with other companies about potential involvement in a bid. They approached Netflix Inc. to gauge its interest in a deal, people familiar with those discussions said, but the video-streaming giant passed, one of them said.

Oracle isn’t as obvious a potential buyer as Microsoft. Oracle has a sizable cloud-computing operation and technical capabilities, but it is mainly focused on serving business clients and has virtually no experience running a social-media platform or other major consumer-facing business. Microsoft is an even bigger player in business computing but also owns the LinkedIn social-media site and the Xbox videogame business. It also is much bigger and has about $136 billion of cash, some three times what Oracle has on hand.

Because ByteDance either has to agree to a deal that satisfies the government or risk its TikTok asset being banned entirely in the U.S., Microsoft and other suitors have significant leverage in price negotiations.

There are widely different views on valuation. ByteDance has estimated TikTok’s U.S. operations and those in the other countries could collectively be worth more than $50 billion, one of the people said, while some people familiar with TikTok’s operations put the number significantly lower. TikTok has around 100 million users in the U.S., and they are considered among the most lucrative world-wide for the app, which is still believed to be losing money.

Paying a fire-sale price could pose a risk for Microsoft, which has a sizable business in China, or another buyer, by potentially further inflaming sentiment in China, where talk of a forced sale and the U.S. government taking a cut from the transaction has been criticized.

Zhang Yiming, ByteDance’s founder and chief executive, favors Microsoft, said people familiar with his thinking. Mr. Zhang, who briefly worked at the company, likes its culture and has a good relationship with Microsoft CEO Satya Nadella, one of these people said.

While Oracle lacks experience running consumer tech businesses, it has political connections that could help its pursuit of TikTok. Larry Ellison, Oracle’s co-founder, chairman and largest shareholder, earlier this year threw a fundraiser at his home for the president. Chief Executive Safra Catz also worked on the executive committee for the Trump transition team in 2016 and has donated to his re-election campaign.

Asked about a possible Oracle bid last week, Mr. Trump said, “Well, I think Oracle is a great company and I think its owner is a tremendous guy, a tremendous person. I think that Oracle would be certainly somebody that could handle it.”

Sequoia also has ties to the administration and has been lobbying for ways to enable TikTok to keep operating in the U.S. Mr. Leone, the Sequoia global managing partner, has called Treasury Secretary Steven Mnuchin and Mr. Trump’s adviser and son-in-law Jared Kushner as part of this effort, according to people familiar with those discussions.

Mr. Leone and his wife have donated tens of thousands of dollars to Republican candidates this election cycle, including to the president’s re-election effort. In January, Mr. Leone hosted a reception for Secretary of State Mike Pompeo at his Atherton, Calif., home.

Mr. Ford has donated thousands of dollars to Republican congressional candidates this election cycle as well.

Source: Wall Street Journal by Rolfe Winkler, Miriam Gottfried and Cara Lombardo

General Atlantic, Sequoia Capital Are Key Drivers in Oracle Bid for TikTok General Atlantic, Sequoia Capital Are Key Drivers in Oracle Bid for TikTok Reviewed by TechCO on 8/26/2020 Rating: 5

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