British microchip company Arm will float in New York rather than London this year, dealing a major blow to Rishi Sunak’s ambitions to make the City the first choice for tech company flotations.
Rene Haas, Arm’s chief executive, said the decision to float its shares on Wall Street came despite talks with the UK government and Financial Conduct Authority (FCA).
Still, the decision is a blow to London, where Arm was listed for 18 years until it was bought by SoftBank (9984.T) in 2016 in a $32bn (£26.6bn) deal that received the minimum level of scrutiny by the government, leading to criticism that it had allowed UK's biggest tech success to be bought by foreign investors.
The Cambridge-based Arm designs the chips that power most of the world’s smartphones. It is expected to be worth as much as $70bn (£58bn) according to bankers pitching the company on the US float.
Victoria Scholar, head of investment at Interactive Investor, said the snub was a “kick in the teeth” for London.
“Softbank-owned Arm said it is aiming for a US IPO this year, as expectations fade that the British chipmaker could be heading for a London-listing. This is a blow to the UK government and the City of London post Brexit as Arm pins its hopes on New York, where some of the world’s biggest tech companies have floated including Apple (AAPL) and Tesla (TSLA),” she said.
"While the FTSE 100 (^FTSE) enjoyed relative resilience last year partly because of its lack of technology giants, allowing it to avoid the ‘tech-wreck’, this has also long been a criticism of the UK blue chip index which has struggled to attract key behemoths in the sector. There have also been some high profile disasters in UK tech with Deliveroo’s (ROO.L) IPO flop and THG’s (THG.L) share price slide.
“Arm’s abandonment of London is another kick in the teeth for the Square Mile’s attractiveness among international investors as a go-to destination for technology giants, she added”.
The company’s boss has said that Arm planned a secondary UK listing at some point in the future and said that the company would continue to be headquartered in the UK.
In January, Rishi Sunak reportedly restarted talks with SoftBank to persuade it to list the computer chip maker in London.
Arm was put off by a rule that requires UK-listed companies to disclose all related-party transactions, potentially forcing it to report dealing with any other companies SoftBank has a stake in, according to the FT.
Fears for the future of the London stock market are mounting, with some questioning if London’s stock market is losing its lustre.
Peter Harrison, head of the fund manager Schroders (SDR.L) and one of the City’s most senior executives warned that the UK’s failure to back “risk takers” means London is unable to compete with New York.
“How do we create a system that is more willing to accept risk? Everything is about risk reduction. That has been the thing that has undermined growth, and importantly it has undermined returns [for investors],” he told Financial News.
The listing plans come a day after building materials giant CRH (CRH) revealed it is planning to shift its main stock market listing from London to New York.
CRH, which is headquartered in Dublin and valued at more than £30bn, said: “We have now come to the conclusion that a US primary listing would bring increased commercial, operational and acquisition opportunities for CRH.”
"It’s a move that seems to make sense for a company that does so much business stateside, but it hints at further dissatisfaction with London’s ability to cut it as a global financial superpower. This was coupled with the blow that the UK chip maker Arm won’t opt for a dual UK/US listing, despite attempts by the PM to woo the company back home when it returns to public ownership,” Danni Hewson, AJ Bell head of financial analysis, said.
“So much for building back better, for a new post-Brexit era of prosperity,” she added.
The Irish-based company has been listed in London since 2011.
UK-listed Paddy Power owner Flutter (FLTR.L) said in February that it was considering an additional listing in America and a report this week that oil giant Shell (SHEL.L) explored moving to the US before eventually deciding against.
London Stock Exchange Group (LSEG.L) boss David Schwimmer said that, despite reforms to UK financial rules, there was no "silver bullet" to reverse the trend.
"Efforts to relax the listing rules to attract more companies to London come across as a bit desperate. It should be a badge of honour to list in the UK, but that reputation is dwindling fast. Overseas investors lost interest in the trading venue as soon as the UK voted in favour of Brexit, and valuations have got even cheaper. That’s hardly a good sales pitch to attract more big companies to the UK market,” Russ Mould, investment director at AJ Bell, said.
“There are plenty other companies in the FTSE 100 which do business in the US that could easily follow Ferguson (FERG) and CRH. That’s not a good look for the London Stock Exchange,” he added.
Reforms have included allowing dual-class share structures as well as a cut in the minimum ‘free float’ requirement for shares.
Arm said it would expand further in its home country by opening a new site in Bristol, with plans to maintain its headquarters, operations and material IP in Britain.
A government spokesperson said: “The UK is taking forward ambitious reforms to the rules governing its capital markets, building on our continued success as Europe’s leading hub for investment, and the second largest globally.
“We continue to attract some of the most innovative and largest companies in the world – and note Arm’s commitment to expanding its presence in the UK, providing a boost to growth, jobs and investment.”