It is hardly a coup de grâce to the City of London. But SoftBank’s rejection of a London listing for Arm is a serious blow. More than one UK prime minister lobbied for the Cambridge-based chip designer to return to the UK stock market. The postmortem on this failure of diplomacy will be messy.
Arm is a rare beast: an indigenous British tech success story. This former backroom start-up has bested Intel in low-energy chip design. The decision of its owner to list the group in New York, combined with a slow exodus of multinationals, reduces London’s status as an international financial centre.
The ebbing financial benefits of a listing in post-Brexit London are partly to blame. UK stocks trade at a discount. They are denominated in sterling, a currency which has recently been weak and volatile. Liquidity has been diminishing.
Building materials group CRH is the latest to pack its bags. It will depart for a New York, as plumbing business Ferguson did last year. Bookmaker Flutter is likely to follow suit.
SoftBank is right that Arm’s future is in the US, the heartland of global tech. Arm’s chip architecture, which it licences to manufacturers, dominates devices from the likes of Apple. New markets including automotive are helping drive revenues. They rose 28 per cent over the previous year in the latest quarter.
The cash-strapped Japanese investment group will nevertheless be lucky to beat the $32bn price it paid for Arm in 2016. UK investors were only too happy to sell the business back then. They received a good price. Shares had languished below highs set in the dot.com era. Technical excellence has not made Arm a wildly profitable business.
Arm cites London’s disclosure rules as a reason to pick New York. UK regulators will face uncomfortable scrutiny. So will the London Stock Exchange Group. Its success as a data company may have distracted it from its role running the stock market — a lower-margin business that is nevertheless a national institution.
The Lex team is interested in hearing more from readers. Please tell us what you think of the competitiveness of the London stock market in the comments section below