SoftBank plans to sell a stake in Arm through an initial public offering after objections from regulators around the world thwarted its $40 billion purchase of US chipmaker Nvidia Corp. Despite recent market turmoil SoftBank founder and CEO Masayoshi Son said this week that he wants to list Arm as soon as possible. Bloomberg News reported in March that Softbank was seeking a minimum valuation of $60 billion. The preparation required for a transaction of this size means that a decision on a listing venue would ideally be made soon, even if it ends up happening early next year.
Son suggested he preferred the US for the deal when the initial public offering became plan A in February. That has not been formalized, and reported lobbying by Prime Minister Boris Johnson suggests a final decision is still up for grabs.
For the UK, the stakes could hardly be higher. Arm designs key parts of the chips that power nearly every smartphone on the planet, and if it’s listed in the US, its headquarters will likely follow in time – you’d need to become a US company to become a member of the S&P 500. index. Arm’s base in Cambridge would be diminished, with worrying implications for the region as a tech cluster. Tax revenue would be lost. The City of London’s ambitions to attract more growing businesses would suffer. Still, the blow to the UK would be huge.
The immediate question for Son, however, is whether the listing location would affect Arm’s share price performance, creating lucrative opportunities for SoftBank to sell more of its stake.
The arguments for New York are simple. The US capital market is massive. It is also more valued than the one in the UK. When other markets close to IPOs, the US can stay open. More speculative venture capital firms are welcome and would be avoided elsewhere. US-listed, dollar-denominated stocks are a good currency for mergers and acquisitions.
These are genuine advantages. But its relevance to Arm is questionable. The company is not a startup. It is a pivotal player in a global industry. Arm will attract investors from all over the world wherever it is listed. You could probably do an IPO even in choppy markets that would kill other deals. Your paper will be a good acquisition currency regardless.
Additionally, the S&P 500’s apparent premium to the FTSE-100 largely reflects its greater weighting in growth stocks, which have higher valuations. Similar comparisons across sectors are less flattering. Dig into the individual names and the reality is that US companies often enjoy a higher valuation because, embarrassingly for Britain, they are just higher-quality businesses: UK banks are still worried about the post-Brexit economy; BP Plc and Shell Plc are more leveraged than their US peers; Unilever Plc and Reckitt Benckiser Group Plc are suffering from self-inflicted injuries.
The fate of the initial public offering is therefore a close decision. Most bankers would probably favor New York: It feels like the safe option. The US also has in its favor the fact that it accounts for much of Arm’s revenue (although being close to its customers is arguably less important in chip design than in other sectors).
But London should get over it. The earlier listing in London, which was accompanied by American Warehouse Receipts in New York, helped make the company what it is. That is proven. UK investors who used to own it won’t need to re-educate themselves on the moving parts of the business. Arm’s DNA is British, and since the UK is where around half of its employees are based, staff may prefer share-based pay on publicly traded UK shares. Plus Arm’s scarcity value as a London tech giant must count for something.
Given all that, the question should not be why London, but why not.
More from Bloomberg’s opinion:
• Tech stocks are entering an era of uncertainty: Parmy Olson
• SoftBank really didn’t need a broken arm right now: Tim Culpan
• London’s threat from Amsterdam hasn’t gone away: Chris Hughes
This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.
Chris Hughes is a columnist for Bloomberg Opinion who covers deals. Previously, he worked for Reuters Breakingviews, the Financial Times and the Independent newspaper.
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