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London set to miss out on another hot tech listing as SoftBank eyes U.S. for Arm IPO

SoftBank Group founder, chairman and CEO Masayoshi Son announces his group’s earnings results on May 9, 2019, in Tokyo.
Alessandro Di Ciommo | NurPhoto | Getty Images

LONDON — British chip designer Arm, often called the crown jewel of the U.K. tech industry, is set to shun its home market and list in New York, dealing a major blow to the British government and the London Stock Exchange in the process.

The firm will likely be publicly listed on the tech-focused Nasdaq stock market within the fiscal year ending March 31, 2023, according to Masayoshi Son, the CEO of Japan’s SoftBank, which owns Arm.

“The U.S. … that’s the market that we are looking at when it comes to listing Arm, and most likely Nasdaq,” Son said in a press briefing Tuesday. “But wherever it is, the U.S. is the market that we’re looking at for the listing of Arm.”

Arm was spun out of an early computing company called Acorn Computers in 1990. The company’s energy-efficient chip architectures are used in roughly 95% of the world’s smartphones and approximately 95% of the chips designed in China. Arm has around 6,000 staff globally and 3,000 in the U.K.

It was dual-listed in London and New York up until 2016, when SoftBank bought it for $32 billion. The U.K. government hailed the sale of of Arm to SoftBank as a major success at the time but now it’s reluctant to see the semiconductor firm in the hands of an overseas company or listed on an overseas stock market. The ongoing global chip shortage has made nations around the world think about where chips are designed and manufactured.

After acquiring Arm, SoftBank tried to sell it to U.S. chip giant Nvidia but the companies announced on Tuesday that the deal collapsed due to “significant regulatory challenges.” The deal, probed by antitrust regulators in the U.S., the U.K. China and Europe, was originally announced in 2020 and had a value at the time of $40 billion in stock and cash.

“We are excited to go to plan B,” Son said Tuesday. He added that plan B is to have a “big IPO” that will be one of the largest ever in the semiconductor sector.

‘No upside’ to London IPO

The U.K. wants its biggest and best tech companies to list on home soil so that they can benefit the wider economy and prop up the stock market. However, over the years, many have crossed the Atlantic to go public in New York, believing they will achieve higher valuations on the Nasdaq or the New York Stock Exchange.

The most valuable tech companies on the Nasdaq include Apple, Microsoft, Amazon and Alphabet, which all have a market value of over $1 trillion. Meanwhile, the most valuable tech firms on the London Stock Exchange are all valued at less than $50 billion.

Hussein Kanji, a venture capitalist at Hoxton Ventures in London, told CNBC that it would be “irrational” for SoftBank to prioritize a U.K. listing over a U.S. listing.

“There is no upside in listing in the U.K. and enough downside,” he said, pointing to a lack or research, low valuations and the press. “You need upside with downside to convince people to switch.”

Another venture capitalist, who asked to be remain anonymous due to the sensitive nature of the discussion, told CNBC that it’s in the best interests of the company and its shareholders to list on the exchange that provides the deepest, most long-term minded and technology friendly investors and public company analysts.

They said it’s hard to see how this exchange is London. If Arm was listed in London, it would be “a major sign of confidence in the technology ecosystem, it’s public markets, and the geopolitical strength,” the VC said.

Dual-listing?

Last year, a number of household U.K. start-ups listed on the London Stock Exchange but the IPOs didn’t all go to plan.

Food delivery app Deliveroo, for example, saw its share price tank almost immediately after it went public. Cybersecurity firm Darktrace also had a bumpy ride, while fintech firm TransferWise is valued at considerably less than some of its U.S. rivals.

There’s a possibility that SoftBank and Arm could opt for a dual-listing again.

A SoftBank spokesperson told CNBC that a final decision on Arm’s listing destination has not been made. The London Stock Exchange declined to comment.

“If Arm can’t be competitively listed on the London stock exchange then I’m not sure the Chancellor can claim London is the best place to raise significant capital for technology companies,” U.K. lawmaker Darren Jones wrote on Twitter on Tuesday.

Either way, analysts are questioning whether SoftBank will be able to list Arm for the same amount of money that it was set to get from selling the company to Nvidia.

Arm is one of 400 companies that SoftBank has bet its billions on. Some of those bets are looking good but others have taken a hit recently.

“We are in the middle of a blizzard,” Son said. “The market environment is tough. The long term interest rate is going up. The monetary policy of the governments is changing around the world. So the high-growth companies are getting hit with the stock market situation. But the AI revolution is continuously growing. Big time. So we are excited.”

He added: “The weather environment is bad. We are holding tight. We are still planting our seeds. I think we’re going to be having a big spring time.”

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