The EconomistSeptember 5th 2020 Business 55I
nvestorsinbytedancehavegotusedto
being caught between superpowers.
TheywerestilltakenabackonAugust28th,
whenanupdatetoChina’sexport-licens-
ingregimeblockedthesaleofthehotChi-
nese technology firm’s prize asset—the
American arm of TikTok, a short-video
app—toAmericanfirmsandinvestors.
AChineseripostetoPresidentDonald
Trump’scampaignagainstTikTokwasin-
evitable.HecontendsitcouldgiveChina’s
CommunistPartymeanstospyonAmeri-
cans and conduct disinformation cam-
paigns.TikTok’sassurancesthatit doesnot
censorcontentunflatteringtoBeijingor-
sendpersonaldatatoChinahavefallenon
deafears.LastmonthMrTrumpissuedtwo
executiveordersaimedatTikTok,themost
recentofwhichwillbanitintheUnited
Statesif it isnotinAmericanownershipby
November12th.
Microsoft and Oracle, two software
giants, put in rival bids of around
$25bn-30bnforTikTok’soperationsinfour
markets—America,Canada,NewZealand
andAustralia.OracleenlistedsomeAmeri-
canventure-capitalbackersofByteDance,
includingSequoiaCapitalandGeneralAt-
lantic.It wouldbemorehands-offthanMi-
crosoftandcouldletByteDanceoritsfoun-
der,ZhangYiming,reinvestinTikToklater
on.AstrategicsaletoMicrosoftwouldbe
moredefinitive.ButMrZhangfavouredit,
accordingtopeopleclosetoByteDance.He
onceworkedatMicrosoftandissaidtoad-
mire its chief executive, Satya Nadella.Microsoft also beefed up its bid by teaming
up with Walmart, a retail colossus.
Then came the Beijing bombshell. Chi-
na’s commerce ministry added certain
types of artificial intelligence, as well as
personalised information-push technol-
ogy and data analysis, to a list of products
critical to national security. These can no
longer be sold abroad without official per-
mission. They are also what makes TikTok
tick. ByteDance quickly said it would obey
the new rules.
There was always ambiguity as to
whether the app’s American suitors would
get its algorithm. They might have bought
only the brand, its users, ad-buying plat-
form and less advanced software. But Byte-
Dance’s recommendation engine is a big
part of TikTok’s appeal. It has been honed
for years with data from millions of users
around the world and displays an uncanny
ability to divine peoples’ viewing tastes.
So Microsoft and Oracle structured their
bids to keep access to ByteDance’s code. Ac-
cording to a shareholder, both are offering
ByteDance $5bn-10bn upfront, then anoth-
er $5bn or so a year for a few years depend-
ing on TikTok’s revenues and performance.
In exchange, ByteDance would provide
technological enhancements and updates
every six months or so.
“ByteDance is over a barrel, so it has to
earn the price,” says the shareholder. Try-
ing to write a brand-new TikTok algorithm
in America is out of the question, says an-
other investor. It would be as difficult as
starting a new company, he says. The
Trump administration appeared to accept
that TikTok would keep technology ties
with ByteDance, so long as data security
was ensured by an American owner and the
link did not last for ever.
Now Microsoft and Oracle await Byte-
Dance’s decision. They may withdraw their
bids or amend them, to take account of the
fresh uncertainty over what they would be
getting. Once ByteDance signals its inten-
tions and any revised bids are in, it could
take 30 days to get China’s go-ahead. Byte-
Dance could then request an extension to
Mr Trump’s November deadline, perhaps
hoping that he loses to Joe Biden in elec-
tions on November 3rd.
The risk of TikTok being blocked in
America remains substantial. The Chinese
government may refuse to grant an export
licence and buyers could walk away. This
would deprive ByteDance of billions. But
that may be a price China is willing to pay to
prevent America from setting a bad prece-
dent by forcing the sale of a Chinese tech-
nology to American interests.
As for Mr Zhang, taking a stand against
Mr Trump would earn him kudos, and pos-
sible rewards, at home. State approval is
not something the independent-minded
entrepreneur has sought. He may yet have
little choice but to accept it. 7NowitisChina’sturntomesswiththe
hitshort-videoappTikTokLimbodance
A
few years ago Future Group was seen
as, well, the future of Indian retail.
From humble beginnings making trousers
in the 1980s, Kishore Biyani, its founder,
built 2,000 shops in 400 cities across In-
dia, selling all manner of consumer goods.
That is second only to the 3,700 retail out-
lets run by Reliance Industries, India’s larg-
est conglomerate, which peddles every-
thing from motor fuel to mobile phones.
Future’s Big Bazaar supermarkets or Food-
hall, a posh grocer, are enviably large and
modern, as is its logistics network.
So enviable, in fact, that on August 29th
Reliance said it would pay $3.4bn for most
of the company. The combined group
would account for one in three formal
shops in India. “This transaction takes into
account the interest of all stakeholders in-
cluding lenders, shareholders, creditors,”
said Mr Biyani in a statement.
Amazon might beg to differ. Last year
the American e-empire struck a complex
deal to provide Future, whose expansion
had left it deeply indebted, with cash in ex-
change for an option to buy it later—law
permitting. Despite fiddly visits from In-
dia’s regulators and trustbusters, Amazon’s
hope was that the deal would go ahead. No
such luck. On the contrary, India’s govern-
ment has been making it harder for for-
eigners to own Indian warehouses and de-
livery fleets. It has tightened restrictions
further amid the covid-19 pandemic.
As an Indian firm, Reliance faces no
such obstacles. In the past year it has
emerged as India Inc’s undisputed champi-
on. It now accounts for 18% of the market
value of India’s 30 biggest firms (see chart)
and has secured $20bn in foreign invest-
ments in Jio, its mobile-network-turned-
digital-platform. Investors including Face-
book, a social-media giant, and kkr, a priv-
ate-equity one, appear to have concluded
that the best way to get a piece of India’s fu-
ture is through a piece of its biggest player.
Mr Biyani may have had no choice but to
find a buyer for his group. In a securities fil-
ing in March he said Future Group was in-
vestigating “baseless and false” rumours
about the finances of subsidiaries that
were undermining their share price. On
August 31st a subsidiary defaulted on some
bonds held by mutual funds run by Frank-
lin Templeton, a big American asset man-
ager. The debt is supposed to be repaid
from the proceeds of the sale to Reliance,
Franklin Templeton said. Still, being part
of Mr Ambani’s empire may not have been
the sort of future Mr Biyani had in mind. 7India’s biggest company gets
bigger. Again
Indian business
Over-Reliance
It all depends
Reliance Industries, market capitalisation
2020, % of BSE Sensex index totalSource:DatastreamfromRefinitiv20
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