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ByteDance is internally exploring scenarios for selling a majority stake in TikTok’s U.S. business, preferably to companies outside the tech industry, and without the algorithm that recommends videos to TikTok users, said three people with knowledge of the deliberations.

ByteDance’s internal discussions come as President Joe Biden on Wednesday signed into law a requirement that TikTok cut its ties with ByteDance within nine to 12 months or face a U.S. ban. TikTok is planning to fight the law in court, the company has said, defending the First Amendment rights of the app’s users. As a backup option in case ByteDance loses the lawsuit, staffers have been plotting out scenarios for the potential divestiture of TikTok.

The Takeaway

• ByteDance’s corporate strategy team is considering sale scenarios

• Sale is backup option to legal challenge

• ByteDance doesn’t want to sell to “tech-centric” firm

Staffers involved in the discussions include the corporate strategy team led by Zhao Pengyuan, the people said. Zhao’s strategy team is responsible for providing industry and business research based on management requests. Zhao reports to Bytedance CEO Liang Rubo.

One scenario under discussion involves ByteDance selling more than 50% of TikTok U.S. but retaining a minority stake. ByteDance could retain 20%, the limit that the law puts on Chinese ownership. ByteDance hasn’t reached out to potential buyers, said one of the people.

TikTok in its entirety could theoretically fetch as much as $100 billion, given social media valuations. The U.S. portion would be less, while the forced nature of any sale would also likely reduce the price.

A ByteDance spokesperson said “This is categorically untrue. Pengyuan’s team doesn’t have that responsibility and has not worked on any plans for the scenarios discussed.”

The internal discussions suggest ByteDance executives want to do whatever they can to avoid a ban of the app in the U.S., which would severely hobble its global potential as a business. TikTok last year generated about $20 billion in revenue, mostly from advertising, with the bulk of that coming from the U.S. Executives see shutting down TikTok in the U.S. as a last resort, two of the people said, noting that it would set a bad precedent for other Chinese tech firms that want to operate in the U.S.

The sale options being discussed wouldn’t include the algorithm that powers TikTok, but it would include the TikTok brand. China would probably block the sale of the algorithm anyway. In 2020, when ByteDance last considered selling TikTok, China changed its export control rules to include technology such as the algorithm.

The sale scenarios being discussed also prioritize selling to a company that isn't directly involved in the tech industry, two of the people said. That would exclude, for instance, tech companies such as Oracle and Microsoft, which both made offers in 2020 when it briefly conducted an auction of TikTok in the face of a threatened ban of the app by then-President Donald Trump, the people said.

Both tech companies are seen to be in the crosshairs of both China and the U.S., which would complicate the sale of TikTok to either party. If ByteDance stuck to this approach in any sale discussions, it could open the door for Walmart, which was involved in a bid with Oracle for TikTok in 2020. (It’s not clear whether Walmart, Oracle or Microsoft would be interested. Neither Oracle nor Walmart responded to a request for comment. Microsoft declined to comment.)

While the likely steep price of TikTok could pose an issue for many buyers, ByteDance could reduce the cash cost by spinning off TikTok into a new company owned partly by U.S. investors that already own about 60% of ByteDance.

But without the algorithm, TikTok may have limited appeal to buyers. A potential purchaser would need to rebuild its back end, which would require expensive and hard-to-acquire computing resources. Many of the staff engineering TikTok’s algorithm work at ByteDance, meaning a purchaser would also need to staff up in a competitive market for machine-learning engineers.

It’s not clear whether China would allow a sale of any part of TikTok. The Chinese government and state media have criticized the law. China’s Ministry of Commerce said last month that China would “take all necessary measures” to protect its rights and interests in response to a question about the bill, and the country’s state-run English-language newspaper China Daily called it “another attempt at theft on a grand scale.”

Publicly, TikTok has positioned the bill as an outright ban. “This unconstitutional law is a TikTok ban, and we will challenge it in court,” the company’s policy team posted on X on Wednesday.

Sharp falls in commodities are unlikely to continue, says lender, making it harder for central banks to cut interest rates

Energy and other commodity prices are unlikely to continue to be a major deflationary force in the coming years, according to the World Bank, hampering central banks in their efforts to cut interest rates.

The multilateral lender said in a report on Thursday that the sharp decline in commodity prices over the past two years had come to a halt, as geopolitical tensions tighten supplies and demand for industrial metals and those used in the energy transition continues to grow. 

Global commodity prices tumbled 40 per cent between mid-2022 and mid-2023, with oil, gas and wheat among those falling sharply. That helped drive down global inflation about 2 percentage points over that period, according to the bank.

But over the past year prices have plateaued, according to the World Bank’s index, putting an end to this deflationary pressure. 

“Global inflation remains undefeated,” said Indermit Gill, the World Bank Group’s chief economist and senior vice-president. “A key force for disinflation — falling commodity prices — has essentially hit a wall. That means interest rates could remain higher than currently expected this year and next.

“The world is at a vulnerable moment: a major energy shock could undermine much of the progress in reducing inflation over the past two years,” he added.

The bank forecasts that commodity prices will fall as little as 3 per cent in 2024 and 4 per cent in 2025. That would still leave prices about 38 per cent higher than they were on average between 2015 and the start of the coronavirus pandemic in 2020. 

This slowdown in price falls will do little to quell above-target inflation and creates a problem for central banks wanting to bring down interest rates, according to the report. 

“The big deal” was that commodity prices were staying high while global growth slowed, Ayhan Kose, the World Bank Group’s deputy chief economist, told the Financial Times.

This divergence marked the start of “a new era”, Khose added, noting that the last time this happened was in the wake of the 2008 global financial crisis.

While most commodities are still set to come down in price but at a slower pace, according to the bank’s forecasts, copper is set to rise as the energy transition spurs demand for the metal, which is essential for manufacturing electric cars and upgrading the electricity grid.

Double-digit growth in global energy investment “brings additional pressure on the demand side, keeping prices higher”, said Khose. Demand in China had also been more robust than expected, he added.

The report also forecasts that tensions in the Middle East will push up the cost of gold — seen as a haven in times of conflict — and oil. The bank expects the price of Brent crude oil to average $84 a barrel this year, slightly higher than last year’s average, and $79 in 2025. On Thursday, Brent was trading at about $88 a barrel.

Commodity prices could be even higher if conflict in the Middle East escalates, however, the report added. “Those tensions bring a certain premium, especially in the context of the price of oil, and also bring more frequent price movements,” said Khose. 

The bank forecasts that, if the conflict intensifies in a worst-case scenario, oil prices could blast through $100 per barrel this year. Such a sharp rise would push up overall global inflation nearly 1 percentage point, it said. 

Event details and information

Energy Transition

Memory fabs in Idaho and New York to strengthen U.S. economic and national security, expected to create approximately 75,000 direct and indirect jobs across the U.S. semiconductor supply chain

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Mining giant has had discussions with potential buyers, in a separate process from BHP’s takeover bid

Miner Anglo American is considering a sale of De Beers, its storied diamond unit that has recently struggled, according to people familiar with the matter.

The London-listed company has held conversations in recent weeks with potential buyers, including luxury houses and Gulf sovereign-wealth funds, the people said. Anglo has signaled to potential suitors that it is open to offers, according to the people.

The discussions are at an early stage, some of the people said, and a valuation hasn’t been discussed. An eventual buyer might be a combination of a luxury house and a financial investor, one of the people said. The names of potential bidders couldn’t be learned.

Anglo said Thursday it had received an all-share offer from BHP, contingent upon it spinning off shareholdings in two South Africa-listed units, Anglo American Platinum and Kumba Iron Ore. The potential deal could reshape the global mining industry. De Beers wasn’t specifically mentioned in BHP’s offer, but it would be included in a potential takeover. Anglo’s discussions about the diamond unit are believed to have been separate from that takeover bid.

Anglo has been conducting a widespread review of its assets as lower commodity prices have ripped across the industry, prompting production cuts at the miner. The market for diamonds has been particularly affected, and in February, Anglo said it would take a $1.6 billion impairment charge on De Beers.

Maker of Birkin bags beats expectations with strong sales of leather goods and jewellery

Strong demand for its exclusive handbags drove revenues at French luxury group Hermès up by 17 per cent in the first three months of 2024, defying a wider slowdown in luxury sales.

The maker of Birkin and Kelly bags said sales rose 17 per cent on a like for like basis in the first quarter to €3.8bn, beating consensus analyst expectations of 13 per cent growth, and giving it the industry’s fastest revenue gains so far in the period.

“The solid sales growth in the first quarter 2024 reflects the loyalty of our clients worldwide, the strength of the group’s artisanal model and the desirability of our creations in a more complex environment,” said executive chair Axel Dumas.

The company outpaced larger rival LVMH, where sales increased 2 per cent on a comparable basis, and at Kering, where plunging performance at its biggest brand Gucci dragged group revenues down 10 per cent in the first quarter. Hermès also defied concerns about weakening demand in the key Chinese market as the economic outlook there darkens.

The Paris-based group maintained double-digit growth across all regions, including in Asia, excluding Japan, where sales expanded by 14 per cent. However traffic in greater China did soften after the lunar new year, the company noted.

“Hermès continues to impress with growth mirroring the performance of Moncler and Prada yesterday, and the beat stemming from leather goods and jewellery,” said Thomas Chauvet, analyst at Citi. “Shares have outperformed the sector this year . . . following consistent outperformance since 2018.”

Hermès is one of the most reliable performers in the luxury sector, with its high-end clientele and demand for key products outstripping supply both helping it to defy downturns. While rivals took a hit at the end of 2022 due to strict zero-Covid lockdown measures in China, Hermès’s business did not suffer a setback.

The luxury industry as a whole has been slowing down over the past year as an unprecedented pandemic-era boom comes to a close. Consultancy Bain expects the market for personal luxury goods to grow 1 to 4 per cent in 2024, down from an estimated 8 to 10 per cent in 2023. However Hermès is expected to be at the head of the pack despite the more challenging outlook.

“In a year of normalisation for the luxury sector, Hermès will likely deliver double-digit revenue and earnings growth, supported by 8-9 per cent pricing and further solid volume growth in non-leather categories,” Chauvet wrote.

The company’s leather goods, ready to wear and jewellery and homewares divisions all grew in the double digits, with watch sales one of the few points of weakness, underperforming expectations.

Shares in Hermès have risen 24 per cent so far this year, to a market value of €247.5bn, while LVMH is up 10 per cent, Cartier owner Richemont is up 15 per cent and Kering is down 17 per cent.