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Microsoft TikTok deal may not be strategic, but a good deal anyway

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Satya Nadella, chief executive officer of Microsoft Corp., listens during an interview on The David Rubenstein Show in New York on Sept. 27, 2017.

Christopher Goodney | Bloomberg | Getty Images

Microsoft is in talks to acquire TikTok.

Strategically, this doesn’t make a lot of sense for Microsoft, which has been steadfastly focused on enterprise software under Chief Executive Officer Satya Nadella and has seen its market valuation balloon to more than $1.5 trillion because of it. 

But Microsoft should absolutely try to acquire TikTok. Any company with the means to do it should.

TikTok is supremely positioned to explode from a valuation standpoint. It is just now beginning to monetize its huge audience with advertisements, and curated, targeted, clever short-form video ads are perfect for a younger audience that skips or pays to ignore traditional TV commercials. ByteDance would be selling just as TikTok is about to take off. Unfortunately for the Chinese-based company, U.S. president Donald Trump is expected to order ByteDance to divest the U.S. part of the business for security reasons. 

“While we do not comment on rumors or speculation, we are confident in the long-term success of TikTok,” TikTok said in a statement on Friday. “Hundreds of millions of people come to TikTok for entertainment and connection, including our community of creators and artists who are building livelihoods from the platform. We’re motivated by their passion and creativity, and committed to protecting their privacy and safety as we continue working to bring joy to families and meaningful careers to those who create on our platform.” 

Sometimes, if an asset is cheap enough, the synergies don’t matter. Take CNBC’s parent company, Comcast, which acquired 51% of NBCUniversal from General Electric during the 2009 financial crisis for the now-laughably low price of $13.75 billion. Two years later, Comcast bought the other 49% for $16.7 billion. Last year, NBCUniversal posted EBITDA of $8.7 billion, suggesting a pre-pandemic valuation well north of $60 billion. 

As Morgan Stanley Vice Chairman Robert Kindler said this week, there are no obvious synergies between TV content ad distribution. But that doesn’t mean Comcast made a mistake buying NBCUniversal.

The counterargument is Microsoft could screw up TikTok. It does have some history botching consumer-facing acquisitions, such as Skype and Mixer. But simply bringing in TikTok and letting it do its thing isn’t overly complicated. 

It’s unclear how much TikTok’s U.S. operations would cost, but Reuters reported TikTok investors value the entire business at $50 billion. Given Facebook today is worth about $725 billion, there’s evidence that popular global social networks that can monetize advertising have some major growth possibilities.

Microsoft does have some consumer-facing products, such as Minecraft and XBox. But most importantly, it wasn’t one of the big four technology companies — Apple, Amazon, Facebook and Google — that just this week testified before Congress about having too much power. Perhaps it should have been. For the last few years, it’s been right alongside Apple as one of the most valuable companies on the planet.

But if Microsoft sees a window to help the U.S. government score a victory over China, antitrust considerations likely won’t come into play. Nadella may be focused on businesses, but he probably knows a good deal when he sees one.

Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.

WATCH: Microsoft’s potential TikTok acquisition

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Global deaths surpass 700,000; CVS fills fewer prescriptions

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The global death toll from the coronavirus pandemic has now surpassed 700,000, with the U.S., Brazil and Mexico leading the world in total deaths, according to data from Johns Hopkins University. On Wall Street, Moderna reported a fivefold increase in its second-quarter revenue related to its work on a potential coronavirus vaccine. The company said it has begun talks with multiple countries to supply its potential vaccine. 

Here are the big developments Wednesday: 

The following data was compiled by Johns Hopkins University:

  • Global cases: More than 18.56 million 
  • Global deaths: At least 701,085
  • U.S. cases: More than 4.77 million 
  • U.S. deaths: At least 156,839

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Death toll could top 100, ammonium nitrate stash blamed

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Firefighters spray water at a fire after an explosion was heard in Beirut, Lebanon August 4, 2020.

Mohamed Azakir | Reuters

Beirut’s residents are in shock and mourning after an enormous explosion at the city’s port ripped through the Lebanese capital, injuring more than 4,000 people and killing at least 100, according to the emergency services. Hospitals are overwhelmed, with some too damaged by the blast to operate.

The explosion, which blew out windows and destroyed property for miles around, has been initially blamed on a shipment of 2,750 tons of ammonium nitrate stored in an unsecured warehouse at Beirut’s cargo port.

But the government subsequently announced an investigation to determine the exact cause of the explosion and “who was responsible” within five days.

“I will not rest until we find the person responsible for what happened, to hold him accountable and impose the most severe penalties,” Lebanese Prime Minister Hassan Diab said in the early house of Wednesday morning, adding that it was unacceptable that such a volume of the explosive chemical had been present for six years in a warehouse without any “preventive measures.” It wasn’t immediately clear what ignited the shipment of ammonium nitrate.

The chemical is commonly used as fertilizer, but is also a component in mining explosives when combined with fuel oil and detonated by an explosive charge. Ammonium nitrate can also combust, however, when met with an intense fire, which appeared to be burning in a part of the port before the explosion took place.

‘It’s apocalyptic’

Local media footage and videos uploaded to social media following the blast showed bloodied people walking through debris-strewn streets. Medical staff had to treat patients in parking lots as hospitals exceeded capacity. And countless more victims remain missing — by Wednesday morning, an Instagram page called “LocateVictimsBeirut,” where residents post photos of their missing friends and family, had amassed 63,500 followers.

“I was in the car when we felt the huge blast, the airbags opened,” one Beirut resident told CNBC. “I ran away — it’s apocalyptic. There is no other word to describe it. We’re walking on glass, the entire area of Achrafieh,” he said, describing one of Beirut’s oldest residential quarters.

“Everyone I saw was bleeding from their head, their arms, everywhere. People shouting in despair… I’m still in shock.”

Yumna Fawaz, a local journalist, described the population as “shocked.” “We lost our people and our city. My entire apartment is destroyed,” she said. Another witness described “chaos,” and said that many friends were injured, with some still searching for family members.

Crisis will ‘accelerate government collapse’

The immediate crisis in homelessness, health, overwhelmed medical services and destroyed property and businesses on top of an already crippled economy will only accelerate government collapse, Eurasia Group analysts wrote in a note Wednesday morning.

“The government’s credibility is declining, and large elements of the public no longer believes the government is able to manage,” the consultancy wrote. “In our view this accelerates movement towards collapse of the current government. The economic crisis will also deepen as the port is the main trade valve and base for many stored goods awaiting clearance.”

Any recovery for Lebanon now will be “massively difficult,” said Rodger Shanahan, a Middle East research fellow at Australia’s Lowy Institute.

“This is the last thing a country like Lebanon needs right now,” Shanahan told CNBC’s “Capital Connection” on Wednesday. “Any country would find this difficult, but with Lebanon having been in the middle of probably the worst financial crisis it’s seen … and now here is another example of slack governance — it just continues to reinforce the average Lebanese citizen’s views that they don’t have a government that can govern properly.”

Catastrophe amid already historic crisis

The disaster hit a nation already reeling from crisis and fraught with domestic and regional political tensions. Lebanon is facing its worst economic crisis since its 1975-1990 civil war, with skyrocketing inflation and unemployment, and a currency in free fall. People’s life savings in the local currency, the pound, have seen their value wiped out. The World Bank warned in November that half of the country’s population of 6.8 million may fall below the poverty line.

And this was all before the coronavirus pandemic hit — now, locals are struggling to afford food and basic goods, with angry protesters decrying government inaction and corruption as forcing them to choose between virus infection or starvation. The country has also defaulted on its sovereign debt, and Lebanon’s debt-to-GDP of more than 150% is the third-highest in the world. A shortage of dollars in the country has led banks to restrict withdrawals, leaving people unable to access their money. Talks with the International Monetary Fund over an emergency bailout package broke down last month.

The small Mediterranean country is also home to more than 1.5 million Syrian refugees. Endemic state corruption, crumbling infrastructure, regular power cuts, a pollution crisis and government failure to provide many basic services led to nationwide protests that began in October and continue in various iterations.

On Monday, Lebanon’s foreign minister resigned, criticizing the government’s lack of action and will to solve the country’s financial problems that risk making it a “failed state.” And the port explosion came as tensions simmered ahead of a UN tribunal verdict on Friday on the assassination of former Lebanese Prime Minister Rafik Hariri in a truck bombing in 2005.

The four suspects in the trial are all members of Hezbollah, the Iran-backed Shia paramilitary and political group widely seen as the most powerful political party in Lebanon. The suspects deny any role in Hariri’s death. Hezbollah is designated a terrorist organization by the U.S. government.

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Commerzbank profit slumps 21% as loan loss provisions spike

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The Commerzbank AG logo sits on an illuminated sign outside a bank branch as the bank’s headquarters stand beyond at dusk in Frankfurt, Germany, on Monday, Feb. 5, 2017. 

Alex Kraus | Bloomberg | Getty Images

Commerzbank on Wednesday reported a 21% fall in second-quarter net profit to 220 million euros ($259.7 million) on the back of a sharp increase in loan loss provisions.

The German lender expects a net loss for the full year as it sets aside 469 million euros for bad loans due to both the coronavirus pandemic and the insolvency of payments giant Wirecard. However, shares advanced on Wednesday as the fall in profit was not as drastic as the market had expected.

Wednesday’s earnings report comes amid a leadership crisis at Germany’s second-largest bank. Chairman Stefan Schmittman and CEO Martin Zielke announced their sudden resignations early last month amid pressure from shareholders to reduce costs.

Commerzbank has since appointed Hans-Jörg Vetter, former head of state-owned lender LBBW, as its new chairman, despite vocal opposition from its second-largest shareholder, U.S. private equity firm Cerberus Capital Management.

Commerzbank Chief Financial Officer Bettina Orlopp told CNBC on Wednesday that the bank would wait for a new CEO to be appointed before detailing further cost-cutting measures.

Orlopp also told CNBC’s Annette Weisbach that the bank foresees a “U-shaped” economic recovery depending on the developing pandemic numbers and “positive numbers” in 2021.

“We also assume clearly that there will be some cases with respect to loan loss provisions coming in for the third and fourth quarter,” Orlopp said.

“This is why we booked in already a forward-looking top level adjustment to account for that.”

Commerzbank did not identify Wirecard in its earnings report, but noted that a “single case” was responsible for an additional 175 million euros in loan loss provisions added in the second quarter. Wirecard entered insolvency in June and its CEO Markus Braun was arrested following an accounting scandal in which it admitted that 1.9 billion euros on its balance sheet likely did not exist.

“We had already said last quarter that given the revenue situation, loan loss provisions due to the corona crisis, that it would be very aspirational to get a positive net income (for 2020),” Orlopp said.

“Now we have this single case coming into play and we also clearly said that we want to book for those restructuring charges in Q3 and Q4 to really make progress on our cost reduction, and therefore the outlook is negative for the net income.”

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