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That escalated quickly
At the end of last week, it seemed that TikTok’s days in the U.S. were numbered. “As far as TikTok is concerned, we’re banning them from the United States,” President Trump said on Friday of the hugely popular social network, which his administration considers a national security risk because of its Chinese ownership.
But behind the scenes, Microsoft was exploring a takeover bid for TikTok’s American operations, which gained traction thanks to lobbying from some of the president’s top advisers and Republican lawmakers.
Satya Nadella and Mr. Trump spoke on Sunday, and it appears that the phone conversation bought the Microsoft chief time to flesh out the potential acquisition, The Times’s Mike Isaac, Ana Swanson and Maggie Haberman report. The president had dismissed rumors of Microsoft’s interest in a deal as a way to avoid shutting down TikTok, saying, “We are not an M&A country.”
Now, Microsoft has six weeks to seal a deal for TikTok, which says it has 100 million users in the U.S. In a statement, Microsoft said it would “move quickly” to pursue a deal with TikTok’s parent, Beijing-based ByteDance, aiming to wrap it up by Sept. 15. Microsoft will conduct “a complete security review” of the company, it said, and pledged to keep all American users’ data within the U.S. and sever any connections to systems abroad.
• Over the weekend, top White House advisers like Treasury Secretary Steven Mnuchin and Larry Kudlow, the chief of the National Economic Council, argued the merits of a purchase by Microsoft to Mr. Trump, and enlisted lawmakers like the Republican Senators John Cornyn, Lindsey Graham and Marco Rubio to weigh in. The risk of angering TikTok’s young user base with a shutdown in the run-up to the election was another consideration.
• On the other side, Peter Navarro, the White House’s top trade adviser, pushed for a TikTok ban as a means to punish China in the escalating tech cold war between Washington and Beijing.
How much will it cost? Last week, a group of investors, including Sequoia Capital and General Atlantic, floated a $50 billion bid for TikTok, according to Reuters. Microsoft is interested only in TikTok’s businesses in the U.S., Australia, Canada and New Zealand, and may invite other “American investors” to take minority stakes.
• The time pressure, and alternative of a shut down, may give Microsoft the upper hand in negotiations with ByteDance. But the Chinese company does not seem resigned to a forced sale: In a letter to employees today, ByteDance’s C.E.O., Zhang Yiming, said he disagreed with the order to sell its American operations and stressed that no decisions about TikTok’s fate had been made. “The attention of the outside world and rumors around TikTok might last for a while,” he wrote.
• What is certain is that TikTok’s valuation is many times higher than the $1 billion it cost in 2017 to buy its predecessor, Musical.ly. At the end of June, Microsoft had just over $136 billion in cash.
What’s in it for Microsoft? “The fickle infatuation of tweens,” The Times’s Karen Weise writes. More seriously, taking over TikTok would give the tech giant “control of one of the largest and most influential social networks in the country.” If a deal gets done, it could go a few different ways:
• A transformative Microsoft-TikTok tie up could create meaningful competition for Facebook and Google, leveraging other Microsoft brands like LinkedIn, Minecraft and Xbox. But at a time when Big Tech is under attack for its market dominance, it is surprising to see the White House push TikTok — inadvertently or not — into the arms of one of the largest companies in the world. Slack recently accused Microsoft of anticompetitive behavior.
• Microsoft’s experience with consumer businesses is mixed, so the successful stewardship of TikTok is not assured — think of the search engine Bing or the ill-fated takeover of Nokia’s smartphone business. And in June, Microsoft said it was shutting down Mixer, a video-game-streaming platform, and closing all of its retail stores.
• The biggest risk, perhaps, is for the rest of Microsoft. Will the company’s management need to devote so much attention to TikTok and its attendant political issues that it distracts from its very profitable core of serving business customers?
Here’s what is happening
More than 100 current and former C.E.O.s called for more aid to small businesses in the U.S. The letter, sent to Treasury Secretary Steven Mnuchin on Monday morning, was organized by the former Starbucks chief Howard Schultz with the support of Senators Michael Bennet and Todd Young, a Democrat and a Republican, respectively. It is signed by the likes of the Walmart C.E.O. Doug McMillon, Alphabet’s Sundar Pichai and Disney’s Bob Chapek. The letter calls for “federally guaranteed loans, at favorable terms, that will enable small businesses to transform and sustain themselves through 2020 and well into 2021.”
The NASA astronauts in a SpaceX capsule have returned to Earth. After a 64-day trip to orbit — the first crewed mission by a private company — the capsule splashed safely into the Gulf of Mexico yesterday. “We are entering a new era of human spaceflight,” Jim Bridenstine, the NASA administrator, said at a news conference.
HSBC reported a bigger-than-expected drop in profits, with loan losses and low interest rates weighing on its results. It also upped its forecast for bad debts and said it would resume a restructuring that involves 35,000 job cuts, part of a plan to shrink its U.S. and European operations that was put on pause during the pandemic.
The week ahead
🤝 American lawmakers are haggling over a new stimulus bill, with the shape of supplemental jobless benefits — which expired last week — the biggest sticking point. Democrats are pushing for a $3 trillion package that extends many of the previous measures, while Republicans have aimed for a narrower bill worth around $1 trillion.
🗣 It’s another busy week for earnings, with more than 100 S&P 500 companies reporting their latest quarterly results. The highlights include BP, Diageo, Disney and KKR on Tuesday; CVS and Moderna on Wednesday; Uber on Thursday; and Berkshire Hathaway on Saturday.
📱 Today, Google is expected to unveil its latest Pixel smartphone. On Wednesday, Samsung announces its latest line of phones, tablets and watches. Most of these gadgets will be able to connect to 5G networks, if only more of those were available.
📈 A crucial U.S. jobs report on Friday will reveal whether improvements in hiring in May and June continued in July. Weekly data on unemployment claims haven’t been encouraging, but economists still predict that the economy added around 1.6 million jobs last month (on average, with huge variations in forecasts).
🗓 From The TimesMachine: On Aug. 3, 1981, the U.S. air traffic controllers’ union called a nationwide strike after talks faltered with the federal government over pay, hours and working conditions. More than 10,000 workers walked out, despite the Reagan administration’s threat of “no amnesty” for strikers. Two days later, the president summarily fired all who refused to return to work, a watershed moment that significantly altered the balance of power between employers and workers.
Venture fund-raising is alive and (relatively) well
The coronavirus has made it more difficult for entrepreneurs to raise money. But for many companies — from established businesses to smaller start-ups — the pandemic hasn’t prevented them from finding investors willing to open their wallets.
TransferWise recently raised $319 million in a secondary deal, in which existing shareholders will sell some of their holdings in the European fintech company. The transaction values TransferWise at about $5 billion, a nearly 43 percent bump from last year. Kristo Kaarmann, the company’s C.E.O., told Michael that TransferWise, which was founded in 2011, didn’t need to raise money, since it has been profitable for three years now. But it saw an opportunity for older investors and long-tenured employees to sell some of their stakes.
Smaller companies aren’t afraid to embark on fund-raising either, even if the pandemic has changed the way they court potential investors.
• Ro, a telehealth start-up, said last week that it had raised $200 million in new funding.
• Gro Intelligence, which uses artificial intelligence to gather agricultural data, is in the process of raising an “opportunistic” Series B round with a target of $50 million, its founder and C.E.O., Sara Menker, told Michael.
• Shield AI, which makes A.I. software and autonomous drones for the military and law enforcement, recently kicked off its latest round of fund-raising.
It has taken time for investors to get comfortable, well, investing. Venture deals in the second quarter in the U.S., Europe and Asia were all down from the same time last year, but up from the previous quarter, according to PwC and CB Insights. “There’s obviously a lot more gun-shyness,” Ms. Menker of Gro Intelligence said, with many venture capitalists initially focused on protecting existing portfolio companies rather than striking new deals.
They are now more willing to put money to work, said Ryan Tseng, a co-founder and the C.E.O. of Shield AI. That came with acceptance that Zoom calls, virtual due diligence and other pandemic-era practices are here to stay.
Existing relationships with investors don’t hurt. TransferWise’s round was co-led by a current backer, Lone Pine Capital, and Mr. Kaarmann said his company had formed relationships with new investors in the round, D1 and Vulcan. Ms. Menker said that Gro Intelligence had already signed commitments from its existing investors, including TPG and GGV. For companies without these connections, it will be harder to build the relationships that lead to funding, but perhaps not as hard as it was a few months ago.
The speed read
• Tailored Brands, the owner of the clothing chains Men’s Wearhouse and JoS. A. Bank, and the department store company Lord & Taylor became the latest retailers to file for bankruptcy protection. (NYT)
• Siemens Healthineers bought Varian Medical Systems for more than $16 billion, in the biggest health care deal of the year. (Bloomberg)
• Marathon Petroleum sold its Speedway network of gas stations for $21 billion to 7-Eleven, raising the chain’s store count in North America to around 14,000. (NYT)
Politics and policy
• The president of the Minneapolis Fed said it might be necessary to “lock down really hard” for up to six weeks for the sake of the economy. (CBS News)
• Deutsche Bank has opened an internal investigation into the personal banker of President Trump and his son-in-law, Jared Kushner, over a 2013 real estate transaction with a company part-owned by Mr. Kushner. (NYT)
• The 17-year-old in Tampa who masterminded a huge Twitter hack got his start in Minecraft scams. (NYT)
Best of the rest
• The lab run by a billionaire Indian family is producing hundreds of millions of doses of a potential Covid-19 vaccine that is in trials. (NYT)
• Inside the South China Morning Post, “a newsroom at the edge of autocracy.” (The Atlantic)
• Laundromats are having a liquidity crisis, so to speak, as a national coin shortage makes quarters hard to find. (Bloomberg Businessweek)
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Business News - Opportunities - Reviews