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When investors talk about “zombie” companies, they are usually referring to distressed startups that are limping along, unable to grow, and unlikely to repay the capital they raise.
But this week, as trade insiders heatedly debated efforts by lawmakers to force TikTok’s Chinese parent company ByteDance to sell the app, they discussed a new version: China Zombie.
China Zombie may have a fast-growing business, but it’s stuck in geopolitical crosshairs and is unlikely to yield immediate returns for investors.
ByteDance investors aren’t the only ones stuck with more than $8 billion in ByteDance. What looked like a huge growth opportunity just a few years ago, prompting investors to pour money into companies like Ant Financial, Ping Pong and Geek+, has turned hostile.
“There are other companies like ByteDance,” said Evan Chuck, a partner at advisory firm Crowell, about companies whose investors could find themselves in this position. “It actually just heats it up even more.”
The sale is expected to continue for a long time. Take TikTok for example. Even if ByteDance were to put the app up for sale, it is unlikely that the Chinese government would allow it to include its most valuable asset: its recommendation algorithm. In 2020, as TikTok was nearing a deal with a U.S. buyer, the country introduced new export control rules for its algorithm-like technology (which ultimately fell through).
Jonathan Nee, a professor at Columbia Business School and an advisor to investment bank Evercore, said the company that acquires TikTok will likely own the brand, but not the underlying software or algorithms. said that it was high. He compared buying TikTok without the algorithm to buying Hulu without the content rights. “It’s not entirely clear what we’re buying,” he says.
Many other Chinese tech companies will face similar hurdles if they try to sell to U.S. buyers. In addition, the slowdown in the Chinese economy has caused company valuations to fall, making selling in China unattractive for investors. The number of Chinese companies acquired last year was 3,151, half of the total of 6,341 in 2019, according to financial data firm Dealogic.
IPOs have become difficult. Few Chinese companies have listed in the U.S. since ride-hailing giant Didi Chuxing delisted from the New York Stock Exchange following a crackdown by Chinese regulators just months after its 2021 initial public offering. The number of stocks listed on U.S. exchanges fell from about 18 a year from 2018 to 2021 to just three in 2022, according to PitchBook, which tracks startups.
Listings on Chinese exchanges also face increased scrutiny. The country’s market regulator said this week it would step up oversight of companies listed in the country in light of the collapse in China’s stock market.
Billions of dollars are at risk. Venture investors poured nearly $47 billion into Chinese companies as of 2021, according to Pitchbook. Venture capital is not the only company at risk. U.S. public pension and university endowments invested about $146 billion from 2018 to 2022, according to Future Union, an advocacy group focused on exploring U.S. investments abroad.
But there is little incentive to rush to sell to a local partner while under duress. “At the end of the day, there will need to be some exit opportunity. The question is timing,” said Andrew King, author of the Future Union report. And given the high returns that investors in companies like ByteDance can earn without geopolitical pressure, “they are unlikely to want to take shortcuts,” he added.
Investors have other routes to obtaining liquidity. It’s like borrowing money for an investment. Investors can wait until relations between China and the United States improve, or they can bet that China values the infusion of capital that big deals bring more than geopolitics.
But Jonathan Loughner, Nomura’s head of global mergers and acquisitions, told Dealbook that in most cases, “their hands are tied.” — Lauren Hirsch
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Reconsidering HP’s disastrous deal
Over the past 30 years, Hewlett-Packard has closed some of Silicon Valley’s most disastrous deals. One such case, the $11 billion acquisition of Autonomy in 2011, will come into focus on Monday when British software company founder Mike Lynch’s criminal fraud trial begins.
HP announced that it had written off $8.8 billion due to fraud. But as DealBook’s Michael de la Merced writes, Lynch’s defense will hinge on overturning the conventional wisdom that Autonomy defrauded HP.
Most people remember Autonomy as an embarrassing chapter for HP. The deal was spearheaded by Leo Apotheker, who as HP’s chief executive officer sought to transform the company into a cutting-edge software company. Key to that plan was the acquisition of Autonomy, a company focused on data analytics.
But Wall Street revolted soon after the deal was announced, and Mr. Apoteker was fired a month later. (The New York Times’ James Stewart once called Mr. Lynch the worst tech CEO candidate of all time.) Mr. Lynch was fired in May 2012. In November of the same year, HP took on an $8.8 billion accounting liability related to Autonomy, citing backdating and other “accounting fraud.” Contract modifications and improper valuation of hardware sales to inflate revenues.
Mr. Lynch has sought to provide alternative accounts. He has blamed the collapse of Autonomy on senior executives with whom he clashed, including Meg Whitman, who replaced Mr. Apotheker as HP chief executive. His lawyers argue, for example, that HP executives knew about the hardware sales and didn’t raise the issue.
They pointed to internal emails showing the evolution of Autonomy’s value calculations, which at one time estimated its value at more than $11 billion.
The Autonomy Agreement had a lasting impact. This was a huge blow to HP, and it has since been overshadowed by the likes of Alphabet and Meta.
And Lynch, once dubbed Britain’s Bill Gates, has repeatedly lost legal battles over the years. If he loses in the US criminal trial, he faces up to 20 years in prison.
The curse of “pseudo productivity”
Few people know more about productivity than Cal Newport, author of several books and host of a popular podcast on the subject. His latest book, Slow Productivity: The Lost Art of Achieving Without Burnout, challenges workers swamped by meetings, emails, and messaging to rethink the way they work. I strongly urge you to do so. He spoke to DealBook about why “low productivity” affects not only workers but also businesses. The interview has been condensed and edited.
How does reducing the amount of work you have to do help your boss?
When you agree to do something, there are administrative overheads associated with that commitment, such as emails and meetings. When you have too much to do, most of your day is spent talking about your work, leaving little uninterrupted time to actually do work. And the speed at which you get things done can actually slow down significantly. So, paradoxically, working on only a few projects will help you get things done faster.
This is not a zero-sum dynamic. It’s not about making your life easier at the expense of hurting your employer’s bottom line. It makes everyone’s life better.
I wrote that hybrid work can exacerbate administrative overhead. Many also see hybrid work as a way to free themselves from unnecessary busyness at work. which one?
Hybrid working, as currently implemented, allows you to digitally demonstrate your tangible efforts, so you don’t get bogged down in pseudo-productivity. The way to make hybrid work work is to not have meetings or email when you’re at home. Days at home require complete intellectual flexibility. If you’re working on something important, you can have a meeting on your office day.
What can business owners do to make sure their employees are doing meaningful work?
I say this. “We talk about workload and how much you have to actively work on and how to track that and how to make sure you’re not overloaded. I’m going to be clear about “A lot of things are happening at the same time.” ”
Some executives may view such initiatives as frivolous. They believe that if employees endure long working hours and overload, they will get better results. How do you convince them that you can actually make more money this way?
If you or your employees want to prove they’re tough, install a pull-up bar. But if you want to make something really good, you want people to focus like a laser on one thing at a time, do the best job they can, and then move on to the next thing. Even if you sit on emails or on his Slack all day, it doesn’t indicate that you’re hard. This simply indicates that your organization is operating in a relatively haphazard manner.
thank you for reading! See you on Monday.
Please let us know what you think. Please email your comments and suggestions to dealbook@nytimes.com.
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