Fears for the future of London’s stock market are mounting after SoftBank and the world’s biggest building materials group shunned the City in favor of New York.
SoftBank this week rejected a London listing for Cambridge-based chip designer Arm despite intense lobbying efforts from three successive British prime ministers, two people familiar with the discussions said. The Japanese group has long seen a US listing as its best chance to recoup the $32bn it spent to buy Arm in 2016, given US investors’ higher valuation of technology stocks.
Arm’s chief legal officer Spencer Collins has told city minister Andrew Griffith on Wednesday, one of them said. SoftBank and Arm confirmed the decision late Thursday, saying in a statement that they had concluded a US-only listing this year was “the best path for the company and its stakeholders”, while adding they would still consider a secondary listing in London. “at the right time”.
The decision to concentrate on a single major listing in New York will be a personal blow to prime minister Rishi Sunak, who held a meeting with SoftBank boss Masayoshi Son and Arm chief executive Rene Haas before Christmas to tout the benefits of a London listing.
Arm was delayed by rules that require UK-listed companies to disclose all related-party transactions, which could force it to report dealings with other companies that own SoftBank shares, people familiar with the decision said. The cost and complexity of searching for major listings in the country also factored into the decision to choose New York, the person added.
On Thursday, the £30bn building materials giant CRH also set out plans to move its shares to the US, which is generating huge profits and expects to benefit from president Joe Biden’s plans for infrastructure investment.
Shares in CRH, which has been working on major construction projects in the US, Europe and the UK, rose 9 percent as analysts said the group would offer a higher valuation in New York. Analysts at UBS said that the move of the list to the US could lead to a “re-rating multiple times that the US trade is given by an average of 25x. [price to earnings] vs. CRH at 13x”.
Asked about the move by CRH, David Schwimmer, chief executive of the London Stock Exchange Group, said: “If a company is going to make a decision when most of its business is in the US, then so be it.”
The planned exit comes at a difficult point for London’s capital markets, which have for the past two decades failed to attract the biggest tech companies. The challenges facing the market have intensified over the past year as a wave of listed groups have been acquired.
CRH’s decision revealed that Ferguson, the plumbing and heating supplier formerly known as Wolseley, which last year moved its main listing to the US. Flutter, the FTSE 100 gambling company that is pushing aggressively into the US, plans to establish a secondary listing in New York.
Peter Jackson, Flutter’s chief executive, told the Financial Times that if the move was approved by 75 percent of shareholders, the company would “consider changing our main roster”. Initial feedback from investors was “supportive” and a US listing would yield “long-term strategic and capital market benefits”, he added.
Earlier this week, the FT also reported that Shell’s top executives were exploring moving the Anglo-Dutch energy group to the US.
Anthony Browne, Tory MP for South Cambridgeshire, many of whose constituents work in Arm, said the listing decision was a big blow.
“This is a major part of our national security. . . but the problem with listing overseas is where investors, projects and research often follow,” he said.
“The government has tried its best to get Arm listed in the UK but money talks: even the UK government can’t resist the gravitational pull of the US stock market.”
The London market has recently been hit by a wave of takeovers and private deals that have wiped out companies including Aveva, Micro Focus and cyber security firm Avast.
While CRH points to expanding operations in the Americas, its deeper pool of capital in the US is also a big draw. Bloomberg first reported this week that Arm had decided on a US singles listing.
The steady erosion of London’s status has led the British government to make reforms to safeguard the future of the City of London, from banks, insurance, brokers, exchanges and investors, and aim to redraw the rules for asset classes from cryptocurrency to infrastructure and equity.
Additional reporting by Oliver Barnes, Laura Noonan and Nikou Asgari in London