There’s a much better TikTok deal out there in India

Bloomberg | Updated on September 04, 2020 Published on September 04, 2020

India is the app’s largest market, and SoftBank, which has already poured money into local start-ups, is probably the best placed to bid for the company’s business in India

While US tech giants fall over themselves trying to snap up TikTok’s American business, there’s a large slice of the global short-video service that seems to be forgotten. Ever the deal hound, SoftBank Group Corp’s Masayoshi Son seems to have dug up what could be the smartest move he’ll make this year.

Already an investor in TikTok parent ByteDance Ltd., SoftBank is putting together a coalition to bid for the company’s business in India, Bloomberg News reported late Thursday.

Remembering that TikTok doesn’t operate in China where there’s a local version called Douyin, India is the app’s largest market, with 200 million users. Well, at least before Prime Minister Narendra Modi’s government started banning Chinese apps following a bloody border clash in June that flared back to life this week.

In announcing its own bid for TikTok on August 2, Microsoft Corp. named just four markets — the US, Canada, Australia and New Zealand. There may be a good reason why India was left off that list (and the UK and Europe too, for that matter), but it wasn’t enunciated in the company’s statement.

The focus has understandably been on President Donald Trump’s executive order forcing the sale of TikTok’s US business over national security concerns. Modi went a step further than Trump’s divest-or-depart option. Close to 200 Chinese apps have been banned by the Indian government in recent months, and no path has been laid out for them to return.

Many are of little significance to their parent companies. Tencent Holdings Ltd, for example, will face negligible impact from being locked out of the world’s second most-populous country, according to Bloomberg Intelligence analysts Vey-Sern Ling and Tiffany Tam, who cite Sensor Tower data estimates that just 0.3 per cent of games sales come from India.

Hugely popular

TikTok is different, though. It is (was) hugely popular there, helping bring farmers and rural women into the homes of city slickers and vice versa. When the app was banned, that avenue of entertainment and fame was closed, with no sustainable alternative yet to appear.

Son might be just the man to bring TikTok back. He’s already one of India’s greatest foreign backers, having poured money into local start-ups including e-commerce company, accommodation app Oyo Rooms and fintech provider Paytm. The chief executive officer of the SoftBank Vision fund, Rajeev Misra, is an India-born banker who grew up in New Delhi.

Together, Son and Misra need a winner after their disastrous write-down on the We Company (aka WeWork) and a decline in the value of their portfolio of unicorns. The problem is that they’re tapped out. The $98.6 billion Vision Fund is almost dry. A planned second act won’t hit that scale, if it happens at all.

Wisely, they’re not trying to go it alone and have already had conversations with Reliance Jio Infocomm Ltd and Bharti Airtel Ltd, though such talks have fizzled, according to the Bloomberg News report. If SoftBank does put in a winning bid, however, the deal may be enough to seduce old and new investors into a second Vision Fund, lured by the prospect of getting a stake in a hugely popular Indian consumer play.

While there’s talk of TikTok being worth as much as $50 billion I’ve stated before that I don’t think its worth that, but the US deal may end up coming close to $30 billion SoftBank might be able to pick up the Indian business at a fraction of that price.

Various press reports put a likely deal in the $3 billion to $5 billion range. Sure, TikTok India may provide significantly less revenue per user than America, but with double the user numbers and far greater runway to grow that figure, even $5 billion looks like a good deal.

Unfortunately for SoftBank, one of the interested parties is Jio itself, which has already held talks with ByteDance, TechCrunch reported last month. Son probably doesn’t want to get into a bidding war with Jio boss Mukesh Ambani, whose wealth is valued by the Bloomberg Billionaires Index at $81 billion, making him the world’s seventh-richest person.

Perhaps his early backing of ByteDance will give Son an edge over rival suitors, including Ambani. If so, rather than watching others chase the US business at a sky-high value, SoftBank may find itself pulling off the better TikTok deal.

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Published on September 04, 2020
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