News that Oracle (ORCL -2.95%) might get involved in the controversy-laden saga that is TikTok sent the American company’s shares down on Tuesday. Oracle’s share price fell by 3% on the day, a steeper tumble than the 1.1% slip of the S&P 500 (^GSPC -1.07%).
Dancing with ByteDance?
That morning, citing unnamed “people familiar with the matter,” Bloomberg reported that Oracle is considering a proposal whereby it would provide security guarantees for TikTok’s U.S. operations, in return for taking a small stake in a new TikTok entity based in this country. The site’s vaunted algorithm would stay in the hands of its current owner, China-based ByteDance.
The financial news agency said the idea was floated last week within the Trump administration. The report did not specify by which person or people.
According to the article’s sources, Oracle would be the company responsible for vouching for the safety of users in this country. Among other duties, the veteran tech sector mainstay would have to guarantee that such users would not be exposed to a “back door” that could be exploited by bad actors in the Chinese government.
The report was published less than a month before the April 5 deadline Trump imposed on ByteDance to divest its U.S. operations, on concerns that they put national security at risk. The aim is to effect a sale of these operations, presumably to a U.S.-based company or consortium of companies.
Oracle has not yet officially commented on the report.
Little reason to trade on speculation
As TikTok is a magnet for controversy — and will likely continue to be so, no matter what happens with its American business — investors likely think it’s not wise for a major tech company to become involved with it. At the moment, it’s hard to judge, however, without knowing details about any potential deal or buyout. Therefore, I would not trade either in or out of Oracle on the basis of this latest speculation.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.
