Why TikTok May Prefer A Weaker U.S. Partner: Howard Yu

For somebody who you know can tell us a lot more about it. Now, let's go to Los Angewitz, London, Howard You, who is lego Professor of Management and Innovation at I m d Business School. So the story is that Oracle edged out Microsoft in negotiating for the US operations of China owned TikTok, which is the subsidiary of by Dance. But Professor You explain to us exactly what kind of a quote unquote deal this is. Well, it remained slightly unclear how that technical partnership is gonna be

with Urticle and TikTok. What has been clear right now is Microsoft historically or over the past few days, we're thinking about acquiring tech talk and make it safe for US user, and possibly they need to open the algal or the software code and make it much more transparent

going forward. And in the end it's bike Dance. The owner of TikTok said no to Microsoft, and in a way that the technical partnership is probably keeping whatever algal behind will stay intact and trying to appease to government

at the same time. So, professor, what was the political overhang of this deal or the political influence of this deal from your perspective, I mean, this is a big major development in the sense that for the first time government are really adding on acting on an ad hot basis. So starting from the Trum administration, all of these executive orders, there is no industry saltation, there is no independent inquiry

per se. And then after all the Chinese government at the same time we're basically saying, you know, by Dance, you cannot export any software code in the name of you know, national security. On the ramification is the following that business is find it really really difficult going forward to plan ahead, whether it's long term R and D or product sales and marketing. Given all of these becomes much more of an ad hot basis in your estimation, is Oracle the right kind of company to be doing this?

I mean in the ideal world. This is kind of strange because if you think about Oracle is historically it is really a B two B company. They sells database services. It doesn't really have a large B to C market as a result, to know how that they have would be arguably much less than Microsoft, where is running xboxes or this game, And of course the B two C market is huge and sort of the technical ability around

AI is also amazing too. However, if you're thinking about tech talk, probably one of the biggest worry is once they've gone through the deal potentially go through, would they completely lose their independence. From that angle than Oracle potentially becomes much more attractive. That's smaller than know How around B two SEA market is much less, and quite frankly, they are not very strong in building our goal. So from that angle, it's not too surprising that techtok would

actually prefer a weaker partner in this case Oracle. So do you think this deal this arrangement? I guess it's probably the better way to term it. Do you think this will actually work, Will it go through and we'll actually do what it's supposed to do? You think, I mean over the long run, um is probably simply a cosmetic touch. Um. I mean both administration where it's Beijing and and and the US government is most worry oh,

using this as a excuse of threatening national security. So what the business executive right now is trying to come up with a mixed shift solution to a piece on both sides. But I think going forward, what really have highlight is organization can no longer pick side despite the tou politics between China and US. If you're any multinational particular here in Europe, when I'm talking to executives, they really cannot afford to pick side and ignore one market

versus the other. Um. So that would cause tremendous termoil in the business community as all eyes are watching how TikTok is trying to find for itself. Yeah, it's really interesting. Can you put a value on the USA sets of TikTok, professor? Right? I mean right now they're talking about fifty billion dollar right. It really comes down to depending on how the US acquirer can really leverage both of the user base on what is remaining as you can back engineers and our goal.

So you know, at first I thought Walmart and Microsoft bid is interesting because it potentially TikTok can be a very interesting e commerce platform to rejuvenate Walmart e commerce. So that's a direct symergy that you could put the tag price on and fifty billion dollars kind of okay.

Now for you know Oracle, then I'm not too certain what kind of price they would eventually agree a point because again without the software algorithm being sold potentially, and if Oracles simply a technical partner for distribution itself, then the payback becomes much less tenuous in a way. But maybe they are motivated by other factors as well. Maybe they want to tell a new story to Wall Street, or who knows, maybe there's political motivation in stepping in

and making sure that it goes through UM. But from a commercial aspect, fifty billion dollar without some directs in g on e commerce for instance, will sound a little crazy. So Professor, just thirty seconds left, get your thoughts on what some people are talking about is a technology cold war between China and I mean, the Internet is totally fractured these days. I think what business executive around the world we have to understand right now, we're stepping into

a bipolar world. Right. You have the U S system, the China system, the European zone as well, and in terms of GDP size, all three are important, and yet they conform very different norm very different regulation. So the idea you can be one product and spread around the world and conquer the world is totally over going forward. Decentralization's priority. Conforming to local regulation is second, and the third is the customer insight would be very different as

the Internet world continued to fracture. So I think this is one of the key dynamics that executive must prepared themselves going forward. How are you? Thank you so much for joining us. How would you as the LEGO Professor of Management and Innovation I am the business school based in Switzerland. And Vonnie, it just seems that there is a growing kind of cold war when it comes to technology out there. Well, I imagine it's the type of thing that we'll see the they'll drawn back upon within

the next few months. I mean, we already know the Steve Milution is going to come to some kind of a decision this week on this particular affair of the Oragle TikTok affair. And you know, we just don't know enough details yet. Yeah, exactly right. Not sure the structure here. This is Bloomberg Markets with Paul Sweeney and Bonny Quinn on Bloomberg Radio. Merger Monday is back. And it's not

just TikTok. We also have another big tech deal chip giant in video forty billion dollar deal for SoftBank's ARM unit. That's a UK based business. Let's get some color on that huge deal. We can do that with On and Triny Vaston, senior semiconductor and hardware analysts for Bloomberg Intelligence, so on, And first of all, give us to your foot view of this deal for video. Yeah, hey, Paul,

good morning money. This is a fantastic deal for video. Right, So you're expanding your ecosystem from being a graphics provider for um PC, video gamers and m AI engines if you made for the data center, and you're expanding it to an ecosystem that powers all of um the world's smartphones, all of the world's tablets, all of the world's network devices.

So dramatic expansion of the ecosystem. Um difference between in video and ARM is that in video predominantly monetizes directly through chips it makes UM, and AR monetizes predominantly through intellectual basic building blocks that it makes UM, which are used by multiple chip makers, some of whom are in video competitors, and and so it creates a little bit

of a sticky wicket from a regulatory perspective. But financially it's great for in video and greatful ARM as well because they get a R and D boost UM as a result of the deal. What does it mean for soft Bank? Was this telegraphed in anyway? Yeah? For soft Bank, I would imagine that this raises cash, although the cash component of it is much smaller than we had initially estimated UM. So it helps them sort of going private ambitions are amplified a little bit UM when the deal closes.

They'll get more in video stock, they'll get more cash, they can buy back more of their own stock, etcetera. And it further is their ambitions. They've held in video stock before, so it's not like the Vidio asset is an unknown quantity for softmak alright on it. So your technical analysis of the regulatory is a sticky wicked. I bet if I spoke to January, who does it for a living antitrust animals for Bloomberg Intelligence, would she tell

me they have a very steep antitrust curve to climb. Yeah, I mean you can see that by the fact that you need regulatory clearance US, UK, Europe and China, and even without the um so the US China friction that is currently ongoing, this would dramatically expand the market. You have a sort of a neutral player being acquired by a customer slash competitor. How will they keep the entity separate?

Um They would obviously have to promise their process in writing that in video will not interfere with ARMS licensing model. But the fact that ARMS intellectual property will be first known to Invidio, the roadmaps will be first um uh, Invidia will have first access to it. That sort of creates an advantage for Nvidia that potentially none of its others peers, customers, competitors, etcetera. Have. So Jen is probably going to tell you the same thing that it is

a sticky wicket. Yeah, I mean, ARMS customers are Apple and Intel. You know, they're the hugest customers in the world. ARM will become a US firm if this all goes through, how would that impact our relationship with China, given the China still controls ARMED China. Yeah, so that's a very good question, Monnie. And it was asked on the on

the recent merger call that Nvidia and ARM had. The claim is that the intellectual property origination is still based out of Cambridge and are in Video intends to keep that asset as is and the intellectual property tomasow as is. So technically it's even though ARM becomes owned by an American company, the intellectual property origination is out of the UK. So technically, according to them anyway, it doesn't come under the purvey of the regulators in a more stringent manner.

I mean, that's going to be a hard, um hard piece of thing to convince the US regulators that some how they should not be involved in in that piece of the pipe because in Video is now the owner of that asset. So I think that adds to the

complexity of this. And then we haven't talked about it, but China um Is has used M and a um sort of extended out the M and a um um a deal regulation for for extend periods of time they scuttle the Quacom n XP deal, if you remember, so they could use this as a as an example showcase to show, Okay, this is how you mess with me, this is how I repay you. UM. So that could

be one part of it. The second part of it is also a lot of arms They could squeeze out arm licensing deals UM in the in China as a result of this, make sure that they have access to ARM I P because they're trying to build up their semiconductor industry. So a lot of complexity is involved. I think, UM, the eighteen months is definitely needed, UM and the regulatory part is definitely the stickiest wicket here on a Triny Boston, thank you so much. We appreciate that. A big, big

deal in the space here. The question is when we see some more deals of ANNIE. But very interesting on a Triny Boston, senior tech analysts for Bloomberg Intelligence giving us the breakdown on this NVIDEO deal for armed forty billion dollars short of face some repertory uh roadblocks I think on many countries ANNIE, that's for sure. But I'll

tell you something. Investors are obviously very hopeful about this because in Video's talk is of seven percent, which is quite the move upwards, and it's holding onto those gains where we saw Oracle, for example, earlier on make huge gains and not hold onto them. Meantime, Jeffries has boosted the price targets to six d and eighty dollars from five hundred and seventy. And don't forget, we're at five twenty now, so that's a full one sixty dollars higher

than we are now for Nvideo. Based on this extraordinary deal flow coming out of the market today, well as we saw the number of deals announced today this morning over the weekend. Technology remains at the forefront of investors perspective that includes such new and exploding technologies as blockchain. Get more color on that. We are welcome. We welcome Doug Barthwick, chief marketing officer and head of business development for a company I n X based in New York City. Doug,

thanks so much for joining us here. Let's start off with just you telling us, give us a good sense of what I n X is, what you guys are doing. Sure, so, I n X is a company that we set up a couple of years ago and it's got two different areas. One is for a platform for the trading of cryptocurrency and the other one is a platform for the trading

of security tokens. Now you may not be familiar with security tokens, but if you think about something like Nike stock trading twenty four hours a day in a digital environment, that's what a security token is. And it's our belief that in the near future all equities will end up going on the blockchain and going digital because of the efficiency.

So you can find with that. And so we created an exchange for trading of digital securities and at the same time created a digital security that for the first time as an F one registered with the SEC And I encourage your listeners to go look at it because I'm going to talk about some things and that F one is the first one that's ever been done. It's

on the blockchain. But also this is the first I p O and the U S history that accepts at the I p O Bitcoin, Ether and U s dc or or are stable coins, so first time you can accept cryptocurrencies, and the I p O is currently ongoing. So Doug explained to us how this is different from competition. I believe the wink of as Twins did something like this before. Am I right? I could be wrong? Well, you are correct, and the wink of as Twins have

one exchange and Gemini. I think that's the one you're discussing, and certainly you know you can trade current cryptocurrencies on that, but in terms of security tokens, that's not something that they offer right now. And security tokens come under a very different regulator than does let's say, cryptocurrency cryptocurrencies come under States MT licenses or money transmitter licenses, whereas security

tokens come under the SEC. And so you know, it's a very big step for essentially it's not debt, it's not equity, it's a security token or a digital assets and that's what we've one come up with, and then two we're creating the exchange to trade it. So do you have exchanges up and running now trading securities or trading assets right now? We do not know. And so this, this this raise that we're doing right now is to get them on board in terms of getting to market.

Now we've built them, they're ready to go, but we need to raise capital in order to go out and get some of the licenses that we're looking for. So today we could trade with the US, but we're not turning it on yet until we've finished with the I p O. Dog. Who are the typical investors in an IPO like this, Well, the typical investors are are twofold one. You've got the folks that are already understand the crypto environment.

So that's you know, the folks that are holding bitcoin theoryum that that go on and on about it, and that's probably about point two percent of the population. Now they see what we do as being putting handcuffs on securities because our security for the first time has k y C and a m L built into it do what's called a smart contract. That means you can't tell take an I n X token and sell it to

someone else unless they've already gone through KYC. So this is like, you know, a huge, big change now for securities markets. So that's of the population they're very interested in because this is a giant leap forward for securities markets.

Not only you know, can you do an I P O, but you can also do it you can accept different crypts of currencies, but you can also do it whereby you could list in many many countries at once with the security token just through a couple of lines of code, as opposed to tens of millions of dollars of legal fees. And so you know, we're really making a big change. But also think about this. You know Nike trading twenty

four hours a day, that would be fantastic. And millennials today, of their top five holdings, one of them is g BTC or Gray Scale Bitcoin Trust and that means that you know that the millennial generation has a great interest in digital and yet they don't understand why their dads or their moms look at news at four o'clock on a Friday, a bad news on an equity and they say, don't worry, we'll get out of it at nine thirty in the morning on the Monday. That just doesn't make

any sense to them. And this is the Amazon generation that wants to be able to do things right now, and so we've created a product for folks to trade equities immediately, twenty four hours a day. What's the regulatory framework? What's the SEC saying? For example, Well, the SEC is who have we've been talking to for two and a

half years. We've spent over nine hundred and fifty days creating the F one that can be found on the Edgar database, and then then then there it's shows transparency into a field that traditionally no one's ever had transparency. I think when you think about crypto and you think about exchanges, you know they're all privately owned, most of them are held off shore. There certainly isn't transparency. What we're trying to do is raise money through a community

and build a community. When someone comes in and buys the token, we see that as being a potential user of our platform as well. So I mean I think that's a good run up. Yeah, it's so interesting. I mean, if you know nothing about the blockchain and you know nothing about cryptocurrencies, would you still advise somebody like that to put, you know, give this a go. Well, I wouldn't advise anyone to give it a go. I think that they should look at the F one that the

ad your database. But if you do believe that everything, whether it's equities, whether it's fixed income, whether it's commodities, are going to move onto the blockchain, and we already know that China's and talks to do that with their currency that europs and talks to do that that the

US is discussing a digital dollar. So if currencies are going to move on the blockchain, and given that regulators of love K y C and they like to know who owns what where, and they like to be able to make sure that bad actors don't own things, then I think you can be pretty sure that equities are going to move onto the blockchain as well. And we're the first. Well dog, thank you for coming on and giving us the the explanation about all of this, and I do hope you come back and explain to us

more what's going on as we progress. It seems like the blockchain and come to currencies have been around a while, but I'm certainly no more educated than I was before. I have to re educate myself every couple of years on all of this because the change is so fast and it does seem to be a bit of a

land crab as well. So really interesting to follow Dug Boarth with because chief marketing officer and head of business development at i n X well a good start to the week from the equity market's perspective, lead in large part by sixty nine billion dollars worth of M and A announced bringing Merger Monday back to the markets, back to the four to get a sense of kind of how we think about all this M and A in the context of where we are with the markets. We

welcome Peter Kenny, father of Kenny's Commentary and Strategic Board Solutions. Uh, Peter, thanks so much for joining us here. Well, Merger Monday is back with a vengeance that pushes the pandemic at least a little bit off the front page, at least for a moment here. What do you make of this spade of deals that we're seeing today? What does it mean for the market from your perspective? Well, thanks for

having me um. First of all, the timing couldn't be better because if you look at the Nastack, SMP and the Dow all closed last week at or close to their fifty day moving averages, which which means basically there was effectively a retest of that low that was established on Monday of last week. So this is really really up Tuesday of West week. This is really welcome news. It's great. I love the fact that it's big names like Oracles, saft Bank, the vaccine stories and really really important,

and that's lifting the market. It really is coming at a great time because in the note that I wrote and put out the street this morning, um my concern was that with all the indexities industries really resting on a fifty day and without any news out there that I could you know, shake a stick at, it seems to me or it seemed to me as though there was going to be continued weakness and potentially a drop all of the fifty day for all three Well, does

the Oracle news signals that the China standoff might get sort of eased if you like, because it's it's a major deal. This was one of the ways that the Trump administration was going after China in a very practical manner. Yes, absolutely, Bonny, this was actually a very significant deal on several fronts. First of all, you know, of course, there's a political basis for a lot of what's going on here, and

there's a nationalist security concern. But this is a way out that I don't think anybody was really looking at, and frankly, I don't think anybody was really talking about Oracle, So um, it is a way forward that saves space and allows for a constructive exit from where we currently stand, which was very, very I think it was tense. Frankly,

it was tense, so Peter. Typically, when a CEO and a board decided to go forth with a large acquisition, it signals their confidence in not only their business model and the acquired business model, but also the economy, geopolitics, all those things are confident to put that kind of capital to work. I'm not sure I see that confidence out there is I look at some of the economic indicators and the still uncertain nature of the path of this pandemic. Oh I, I could not agree with you

more wholeheartedly, Paul. I mean, well, you have an awful lot on our plate here. This was a one off, this deal with Oracle and TikTok, this is a one off. This is not speaking to a broader picture other than what Vonnie really intimated. That is that this is a graceful exit out of something that could have been a significantly larger conflict. So the deal is important and it's welcome,

but it's a one off. The broader landscape in terms of trade, global growth, domestic our, domestic economy, there's an awful lot on the table that is that's going to be an act as a headwind from here on to the end of the year, and of course throwing presidential politics, I mean, the biggest variable of all time. Right, what are you telling your clients about the election, Peter um, head your bets, Um, just manage risk. Polls are very

very close. Um. I think that it's regardless of who is elected, the aftermaths of the election is going to test the nerves of the average American because I think it's going to be an awfully um difficult um social economic scene on the streets. I mean, if if what we've been living through over the last month as any indication, I'm afraid it's not going to get a whole lot

better even with the resolution of the presidential elections. How would you suggest hedging that kind of uncertainty, which is we haven't really seen that much in our past history. So if you're in high growth names, if you're in names that have really driven this rally and your today performance by the NANATAK which is far outstripped the SMP and the Dad Johns industrial level act on those names looking to be in names that have not really provided

much of the growth story impetus, but have provided consistent dividends. Um, you know, batting down the hatches, reduce your risk exposure. There's nothing wrong with metals, there's nothing wrong with alternatives, but keep your eye on those aspects of your portfolio that tend to drift drift in parabolic waves. Um. They're great for traders, but they're not great for the everyday investor on nine Street. So just batting down the hatches. Yeah,

it's amazing, you know, batten down the hatches. And at the same time, there's not much you can do, you know, hedge wise, right, Peter, I mean that's right, it's all. It's all in equities right now. You the whole story right now for investors exequities. If you look at bonds, there's no yield. If you look at the global macro story, there's very little. I mean you're getting negative yields and much of Europe. Um, there's really no place to go.

Any argument for just holding onto some cash, Peter, holding on the cash, hold on their precious metals. Have a defensive posture and your portfolio, look for dividends, and just make sure that the exposures that you do have going into the president this whole election is covered either through options or by just simply reducing your exposure. Yeah, Peter,

thank you. Always eliminating to speak with you. Peter Kenny is founder of Strategic Board Solutions and of course also brings out some excellent commentary daily and weekly on the Wall Street Beat if you like. And he's been a member of the New York Stock has changed for the last twenty years and lots more than that. So, Paul, if we weren't expecting to come into a tape that was nicely in the green, but here we have at the Sea up one and three wards of percent, the

Nastack up two point three percent this Monday morning. Thanks for listening to the Boomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or or whatever a podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.