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Sep 14, 2020

DealBook: Is This How the TikTok Saga Ends?

13-16 minutes - Source: NYT



Credit...Justin Sullivan/Getty Images

After insisting that TikTok’s U.S. operations be sold over national security concerns, the Trump administration now appears to be amenable to a watered-down deal where Oracle would become the video app’s technology partner. Readers, we’re baffled — and have several questions.
How would it work? TikTok’s parent company, ByteDance, would apparently maintain control of the app’s algorithms and underlying computer code. Microsoft, whose takeover bid was rejected, said that it would have taken over the algorithm and let the U.S. government review any code changes, an approach favored by the Pentagon and the National Security Agency.
As Andrew notes, Oracle’s bid resembles Microsoft’s original proposal of serving as a technology partner and minority owner — something that President Trump rejected, saying that TikTok’s U.S. arm had to be sold altogether.
How much did politics play a role? Oracle’s ties to Mr. Trump are deep. Its co-founder, Larry Ellison, has raised money for Mr. Trump, while its C.E.O., Safra Catz, was the only major tech executive to serve on the president’s transition team. Last month, Mr. Trump publicly supported Oracle’s efforts, calling it a “great company.”
Will China support a deal? Rules that Beijing introduced last month made TikTok’s U.S. business a less attractive asset — “the car can be sold, but not the engine,” the South China Morning Post reported, citing a person briefed on the Chinese company’s boardroom discussions and referring to the decision to keep control of the algorithms. Chinese state news media, citing unnamed sources, said that ByteDance wouldn’t sell TikTok to Oracle, either, but that could refer to a complete takeover instead of a less comprehensive partnership. It’s hard to imagine ByteDance doing anything with Oracle without Beijing’s tacit approval, but we can’t rule out any more twists in this saga.
What’s next for Microsoft? While its bid for TikTok was opportunistic, the tech giant has demonstrated an openness to a big, consumer-facing deal — so will it consider turning its M.&A. attention elsewhere? (We’d just note that other social networks of a similar value to TikTok include Pinterest, Spotify and Twitter.)
What’s next for Walmart? Would Microsoft’s former partner in its TikTok bid team up with it on a different deal? And Walmart has also said that it is still interested in TikTok, which implies that it may be open to partnering with Oracle, depending on how things shake out.
Will a TikTok deal end the tech cold war between the U.S. and China? This we know the answer to: unlikely.
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Today’s DealBook Briefing was written by Andrew Ross Sorkin in Connecticut, Lauren Hirsch in New York, and Michael J. de la Merced and Jason Karaian in London.
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Credit...Pool photo by Eugene Hoshiko
Yoshihide Suga is on the brink of becoming Japan’s next prime minister. The ruling party’s choice of Mr. Suga, a key lieutenant to the departing Shinzo Abe, signals that his predecessor’s policies will probably continue.
AstraZeneca resumed some of its coronavirus vaccine clinical trials. The drug maker restarted its trial in Britain, nearly a week after halting work because of potential safety issues. A rival, Pfizer, said it would recruit more volunteers for its vaccine’s clinical trials in an effort to speed up testing. Pfizer’s C.E.O., Albert Bourla, said yesterday that he believes it’s “likely” a vaccine will be available to Americans later this year.
Gilead plans to pay $21 billion for Immunomedics. The expensive deal — its price tag is more than double Immunomedics’ market value as of Friday — shows how much Gilead is eager to expand its portfolio in cancer treatments.
Uber is going to court to keep operating in London. The ride-hailing company will argue in a hearing today that it has resolved the safety concerns of London’s transport regulator. The regulator stripped the company of its operating license in November last year, but the company has been able to operate while under appeal.
“Mulan” had a lackluster debut in China. Disney’s live-action spectacle collected just $23 million in its opening weekend there, below the $30 million to $40 million that analysts had estimated. The box office performance was hurt by poor word-of-mouth reviews from Chinese audiences, adding to a raft of controversies that have bedeviled the $200 million film.
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Credit...Kim Kyung Hoon/Reuters
The Japanese conglomerate has announced that it’s selling Arm, the British computer chip designer, to Nvidia for up to $40 billion. The deal ends SoftBank’s ambitious bet that it could use Arm to dominate the market for internet-connected devices.
Arm wasn’t quite the home run that SoftBank expected. The business pushed into many kinds of internet-connected devices, but profits have been squeezed by spending on hiring and other factors. And the so-called internet of things hasn’t yet become the “biggest paradigm shift in human history” that SoftBank’s Masa Son foretold.
SoftBank’s return isn’t huge — for now. It will receive $21.5 billion in Nvidia shares and $12 billion in cash, only a little more than the $32 billion that it paid for Arm in 2016. But it could also receive up to $5 billion in cash if Arm hits certain performance targets. And SoftBank will own a significant stake in Nvidia, whose stock has soared in recent years as it has become one of the world’s leading chip makers. Nvidia was worth a similar amount to Arm when it was bought by SoftBank; Nvidia’s market cap is now $300 billion.
The deal will face a lot of scrutiny. Antitrust regulators and Arm’s customers — including Apple, Qualcomm and Samsung — will examine whether the purchase would give Nvidia’s chips an unfair advantage over competitors. And the British government has demanded that Nvidia protect Arm’s jobs in Britain.
What’s next for SoftBank? Selling Arm was a big part of the company’s plans to divest billions in assets and refocus its business. SoftBank is reportedly rethinking its trading strategy of using call options to bet on tech stocks, according to Bloomberg, and executives are said to have restarted talks about taking the company private, The Financial Times reported.
The two mega deals that were just announced — Gilead’s $21 billion purchase of Immunomedics yesterday and Nvidia’s $40 billion acquisition of Arm — reflect what we’ve been hearing from Wall Street advisers: the M.&A. market is heating up.
Deal makers cite three reasons for the flood of agreements in store:
• A backlog built up during lockdowns
• Soaring stock prices — in certain industries
• The potential for a change in capital gains taxes
And then there’s the election. “I haven’t seen a situation in which people are so focused on getting deals done before the election,” said Marc-Anthony Hourihan, co-head of M.&A. for the Americas at UBS. Not all advisers share that view, but the prospect of volatility from a contested election is enough for some to rush to seal deals. “Clients don’t want to be in the market in November and have the volatility and uncertainty of trying to figure out who won the election,” Mr. Hourihan added.
This is where the conditions are ripe for more deals:
“Winners” in pharma and tech. Shares of those companies’ stocks have soared, and boards are looking to spend some of that currency on bulking up. Appetite for deal making in the health care and tech industries is “as strong as at any point in the last decade,” said Colin Ryan, co-head of Americas M.&A. at Goldman Sachs.
• For pharma companies, there are more likely to be deals that add capabilities — like Gilead’s purchase of Immunomedics — than agreements that completely transform a company. That’s because some big acquisitions have struggled to get regulatory approval without divestitures, and any such deal now could be reviewed after the election, when a potential Biden administration might be more skeptical of concentrated corporate power.
• For tech companies, most of the action is expected among software companies that have benefited from the work-at-home shift — a bunch of them are taking advantage of rising markets to go public this week. That said, deals probably won’t include some of the biggest names, like Facebook and Google, since they are facing increasingly heavy regulatory scrutiny, regardless of who is in the White House.
“Losers” in energy: Weak demand and subdued prices have battered the energy industry, and deal makers expect more consolidation such as Chevron’s $5 billion takeover of Noble Energy and NRG’s $3.6 billion deal for Direct Energy.
Portfolio pruners: Executives and investors are eyeing the implications of a change in the capital gains tax that might happen if Joe Biden wins the presidency and Democrats take control of Congress. Private equity firms are considering selling assets sooner rather than later, founders are mulling stake sales and conglomerates are accelerating plans to slim down.
• “We have some clients — certainly some family-owned businesses — that were thinking about selling that may have accelerated the process to try to get a deal done before a potential tax rate change,” said Marco Caggiano, the co-head of North America M.&A. at JPMorgan.
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Credit...Ben Fathers/Agence France-Presse — Getty Images
Yesterday, the long-running feud between President Trump and Mike Bloomberg took a new turn.
Mr. Bloomberg pledged to spend $100 million in Florida to help elect Joe Biden. The big ad purchase comes as polls show the race there is virtually tied.
Mr. Trump then accused Mr. Bloomberg of being a monopolist. In a tweet, he disparaged the former New York mayor’s terminal business and was “just askin’ ” why nobody had challenged it, questioning whether the success was tied to Mr. Bloomberg’s political influence from his time as mayor of New York. (Mr. Trump’s tweets like this are sometimes throwaway insults — and sometimes signals of impending regulatory action. The Justice Department did not respond to a request for comment.)
For the record: Many have challenged Bloomberg’s dominance in the financial data business over the years, before and after its founder served as mayor, with mixed success. Bloomberg now controls about a third of the market.
A dozen I.P.O.s are expected to raise $6.8 billion this week, led by software companies. The cloud company Snowflake is set to raise more than $2 billion, while the video-game group Unity is targeting $950 million. Others going public include Amwell ($525 million), JFrog ($405 million) and Sumo Logic ($281 million).
At an event on Tuesday, Apple is expected to unveil new versions of its smartwatch and iPad, and possibly some sort of software subscription bundle.
Companies reporting earnings include Adobe and FedEx on Tuesday. The fast-fashion rivals H&M and Inditex (the parent company of Zara) also open their books — H&M on Tuesday and Inditex on Wednesday. BP kicks off a three-day investor event today in which the company will present a plan to reduce its reliance on fossil fuels, as it forecasts that global oil demand may have already peaked.
The Federal Reserve and Bank of Japan announce their latest policy decisions on Wednesday, followed by the Bank of England on Thursday. The Japanese central bank is expected to be the most upbeat, while the Fed is attempting to support a fragile recovery without additional fiscal stimulus, and the Bank of England is wrestling with the Brexit tensions roiling the British economy.
Deals
• JPMorgan Chase plans to create a platform for trading shares in privately held tech companies like SpaceX and Robinhood. (CNBC)
• The French billionaire Patrick Drahi offered to buy the 23 percent stake of the telecom giant Altice Europe that he doesn’t already own for 2.5 billion euros, or about $3 billion. (FT)
• ViacomCBS is reportedly near a deal to sell CNET, the tech news site, for $500 million to Red Ventures. (WSJ)
Politics and policy
• No major private employer has embraced President Trump’s proposed payroll-tax deferral scheme. (Bloomberg)
• The hedge fund mogul Ken Griffin has donated $20 million to a group that opposes Illinois’s plan to adopt a progressive income tax, which would raise taxes on the wealthy. (Business Insider)
Tech
• Netflix is under fire from subscribers and several U.S. senators for releasing “Cuties,” a French movie that they accuse of sexualizing young girls. (NYT)
• Tech companies are asking the E.U. for guidance on transferring the data of European users to the U.S. (FT)
Best of the rest
• The N.F.L. began its season with protests calling for racial justice, as players knelt or stayed in their locker rooms during the national anthem and wore clothing decrying systemic inequality. (CNN)
• Shinzo Abe vowed that women’s standing in Japan would be lifted. They’re still waiting. (NYT)
• “What Happened When a C.E.O. Came Out as Transgender” (WSJ)

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