New York beat London to secure British chip designer Arm Ltd’s coveted listing. to win, a move that underscores the US’s magnetic pull for big business and the UK’s diminished profile as a global financial capital.
Arm became the youngest of a group of companies who have spurned London for the US. New York has deeper capital pools and a more vibrant investor base willing to pay more for stocks than other markets, executives say.
Arm chose the New York listing primarily because of the larger size and more robust liquidity of U.S. markets, and will choose between the NYSE and Nasdaq in the coming weeks, according to people familiar with the company’s mindset.
A US listing is “the best way forward for the company and its stakeholders,” Arm chief executive Rene Haas said on Friday.
For decades, New York and London have struggled to be the world’s largest capital markets alongside other financial centers such as Hong Kong, Singapore and Tokyo. In the mid-2000s, a push for deregulation in Britain sparked hand-wringing in New York over a possible loss of competitiveness. Executives feared that London would eclipse Wall Street in listing large companies, selling bonds and trading securities.
But over the past decade and a half, fortune has shifted toward the US. Stock markets in the US are buoyant thanks to the rise of tech-driven giants like Apple Inc., Microsoft Corp, Tesla Inc.
Arm is one of the world’s most important semiconductor companies behind the scenes. Its technologies power the chips in more than 95% of smartphones, and UK authorities have struggled for months to convince their owners to list the company in both London and New York.
Owned by Japanese tech investment firm SoftBank Group Corp. 9984 -0.48% , Arm abandoned plans last year to sell to US chip company Nvidia Corp. to be sold. Arm was listed in London before SoftBank privatized it for $32 billion in 2016.
Analysts say the New York Arm listing could value more than $50 billion, though SoftBank will push to get a higher figure in hopes that a booming chip sector and comparisons to U.S.-listed chip companies will undermine the appeal of arm will raise. At that size, it would be close to the top 10 stocks in the UK, but only about 150th of the largest in the S&P 500.
New York’s dominance over London has grown over time. At the end of last year, the combined market capitalization of listed companies on the NYSE and Nasdaq was $40.3 trillion, about 13 times the $3.1 trillion on the London Stock Exchange, LSEG 1.94%, according to the World Federation of Exchanges. A decade earlier, the combined market cap on the two U.S. exchanges was about six times the total market cap of the LSE, WFE data shows.
“They’re going to come here because this is where the money is,” said Lou Pastina, executive director of the Global Markets Advisory Group, a New York-based consulting firm.
In contrast, the UK markets continue to be dominated by slower growing banks, energy companies and consumer stocks. Many such as HSBC Holdings PLC, BP PLC and British American Tobacco PLC have histories dating back to the days when Britain was a colonial empire. The few tech companies are small and not comparable to Arm.
A key reason for companies preferring listings in New York is the higher valuations investors give companies. Many well-funded institutional and retail investors in the US are reluctant to buy securities on foreign exchanges or to the currency risk and other hurdles associated with investing abroad.
The booming US economy and the growth of many foreign-owned companies in the US also play a role
CRH PLC, a Dublin-based construction company listed in London, announced this week that it plans to switch to a New York listing. It called the move a logical step given that the company generates about 75% of a key earnings metric in North America. CRH is betting the move will create more “commercial, operational and acquisition opportunities.”
UK-listed sports betting and gaming company Flutter Entertainment PLC announced last month that it was considering an additional US listing as its US-based online gaming business FanDuel is Flutter’s top-grossing online gaming business. Flutter said the listing would give it access to deeper capital markets and a new source of domestic US investors.
Ferguson PLC, a UK-based supplier of plumbing equipment, made the New York Stock Exchange its primary trading venue in May 2022. Since then, the company’s valuation multiple has increased by about 18% to produce more than 15 times forward earnings, according to the Fact Set.
“You can’t credit the entire multiple expansion to the New York listing, but it certainly helped,” said Brian Bernard, an analyst at Morningstar Inc.
Julia Hoggett, CEO of the London Stock Exchange, a unit of the London Stock Exchange Group, said Arm’s move to the US demonstrates the “need for the UK to make rapid progress on its regulatory and market reform agenda, including the level of the… venture capital available to drive growth.”
The UK Government and the LSE have proposed changes to listing rules and other measures which they hope will rekindle investor interest in UK markets.
London executives also blame homegrown problems that have set Britain back compared to New York. Brexit brought uncertainty to London’s role as Europe’s financial hub. A boom in IPOs for mining and energy companies from the former Soviet Union erupted a decade ago, scaring investors away from new listings.
Many are also pointing to a change in the way UK pension funds, once huge providers of capital to the stock market, have drained much of their financial firepower.
In 2000, 40% of shares on the London Stock Exchange were owned by UK pension funds, according to a report released in February by a think tank led by former Prime Minister Tony Blair. Today it is 4%.
Only about a quarter of UK pension fund holdings are stocks, while in the US two-thirds of American pension fund holdings are stocks, according to the London Stock Exchange.
Pension funds’ move away from the stock market is partly due to regulatory changes to pension plans’ funding requirements to ensure they have enough money for retirees, said Ben Gold, head of investment at XPS Pensions Group, a UK-based pension fund. fund advice. That trend was reinforced last autumn when a sharp rise in UK government bond yields forced funds to satisfy demands for collateral by selling liquid assets, including listed shares, that remained in their portfolios, he said.
British executives say their domestic investors tend to be more risk-averse than their American counterparts.
Compared to the UK, the US has “a lot of experience investing in development-stage companies,” said Denise Scots-Knight, chief executive of London-based drug developer Mereo BioPharma Group PLC.
Mereo, which has multiple drugs in clinical trials, raised about half of its $65 million target when it went public in London in 2016. The company was later listed in the US through a reverse merger, raising nearly $200 million in two slugs. It has delisted from the London listing.
By attracting Arm, the LSE would have recaptured a company that was a mainstay before SoftBank acquired it in 2016. The exchange would bet on listing and would encourage other domestic and foreign tech companies to list on the LSE rather than just focusing on US listings.
Mr Haas said Arm, which was founded in Cambridge, UK, plans to remain headquartered in the UK where it will boost investment with a new facility in Bristol and an increased workforce. Arm will continue to house its physical intellectual property in the UK
Mr Haas said Arm will also consider an eventual secondary listing in the UK. “We will continue to invest and play a significant role in the UK tech ecosystem,” he said.
Intel has dominated the CPU market since the 1980s. But rival AMD overtook Intel in market value last year, thanks in part to a heavy bet on chip design. WSJ’s Asa Fitch explains the corporate battle for your computer’s brain.
—Stu Woo contributed to this article.
Write to Ben Dummett at [email protected], Alexander Osipovich at [email protected], and Josh Mitchell at [email protected]
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