Softbank lines up British chip designer Arm for dual listing

Ministers have launched a charm offensive to persuade the British tech champion to choose the UK over New York for its $40bn float

SOFTBANK is planning to list some of its stake in British chip designer Arm in London after caving in to pressure from ministers.

The Japanese tech giant has been exploring options for a stock market float after regulators forced it to abandon a $40bn (£30bn) sale of Arm to US rival Nvidia on national security grounds.

It had originally planned a New York initial public offering for Arm, but will now list some of the stake in London as well, Bloomberg reported.

The move would mark a major victory for Prime Minister Boris Johnson, who has led overtures to Softbank bosses, calling on them to keep the tech giant in the UK.

Cambridge-based Arm, which was acquired by Softbank in 2016, was one of the country’s most important tech firms before the purchase and still has most of its operations in Britain. The company sells and licenses technology for semiconductors used in everything from smartphones to supercomputers.

Softbank was forced to abandon the sale of Arm to chipmaker Nvidia earlier this year after fierce opposition from regulators on national security and competition grounds. The about-turn comes after it announced plans to cut one in 10 Arm jobs in the UK.

Masayoshi Son, Softbank’s founder, has said he plans to sell a portion of Arm before the end of its financial year next March. The bank reportedly now values Arm at about $60bn (£50bn).

While a partial listing in London would be a coup for ministers, uncertainty remains over the exact size and timing of the float.

Rishi Sunak is said to have held two meetings with Arm and Softbank executives over the past six weeks about the company’s future. The Daily Mail reported that the Chancellor raised the possibility of the Government taking a 25.1pc “golden share” in Arm to prevent a foreign takeover in future. Softbank was contacted for comment.

London Tech Week is an annual festival meant to celebrate the UK’S growing digital economy. Inevitably, ministers have spent the last few days doing the rounds at the event. Rishi Sunak, Sajid Javid and Nadine Dorries have been among those pressing flesh and delivering speeches to attract more investment into British tech start-ups and encourage entrepreneurs to float their companies in London.

Some political star power is sorely needed when it comes to the latter. On current form it is hard to imagine many founders relishing a London Stock Exchange listing. Deliveroo, last year’s biggest tech flotation and one that was personally promoted by the Chancellor, is down almost 80pc from its offer price. Trustpilot has lost 70pc, and Wise is off by two thirds.

The tech crash has not been confined to Britain. The Nasdaq composite has lost almost a third of its value so far this year. But the flagship UK tech listings have performed worse than most. It is not a great advert for the London Stock Exchange, or ministers’ promises to make the City the best place in the world to float technology companies.

The companies’ performances have only added weight to the often-heard complaint in venture capital circles that British investors are risk averse, short-termist and religiously devoted to dividends over growth.

Hardly perfect timing, then, for the Treasury to be launching a charm offensive on the Cambridge microchip company Arm, one of the most sought-after tech floats of the next year.

Sunak has reportedly held two meetings with executives from Arm and its owner Softbank in the last few weeks, including seeing respective chief executives Rene Haas and Masayoshi Son. Boris Johnson has also been lobbying Son.

Arm is gearing up for a listing expected to value it at more than $40bn (£33bn) after regulators halted a sale to the Silicon Valley chip company Nvidia in February. It has said it expects a float before the end of next March, and despite Sunak’s overtures, New York is seen as the clear favourite.

The Nasdaq is a better established home for tech companies than the FTSE 100, and US investors are more willing to sacrifice today’s profits for tomorrow’s.

Reports that Softbank is considering listing a partial stake of the company in London will therefore be welcome news inside No11.

It should not be surprising, though. Drawing conclusions from the experiences of last year’s underwhelming tech floats would be foolish. Deliveroo, Wise, Trustpilot and so on are high-growth and loss-making companies in relatively new markets. The rough ride that London-listed tech companies have endured in recent months could say more about the companies themselves than the LSE.

While it is true that British pension funds and investment managers have been less enthusiastic about unproven businesses than their American counterparts, Arm is a different beast.

The company is 34 years old and was listed in London between 1998 and 2016, when it enjoyed plenty of support from investors. Before Softbank’s £24bn offer in 2016, Arm was valued at close to 40 times earnings.

It has a proven and reliable business model. Last year, Arm’s adjusted profits climbed by 68pc year on year to $1bn, while revenues climbed by a third to $2.7bn – almost double what they were when Arm was delisted in 2016. If investors value the company in the same way as they did six years ago, it suggests London could easily support a valuation above the $40bn Softbank would seek.

In truth, America would still be likely to give Son a higher return. The capital markets are deeper and it seems likely that a consortium of US investors including chip companies Qualcomm and Intel will participate in the listing. Few are taking seriously the hypothetical UK alternative of the Treasury buying a 25.1pc stake and a golden share.

But there are other reasons why Arm could choose London. It would cement the company’s neutrality as a company that supplies semiconductor designs to hundreds of customers. In contrast, moving further into the US orbit would increase the risk of Arm becoming a pawn in the White House’s semiconductor war with China.

The company’s 3,000 or so staff in Britain would also be likely to prefer the option of owning UK shares.

A listing does not seem imminent. Softbank would have to be desperate to attempt to float Arm in the middle of the current tech crash. Suggestions that the company has chosen a destination for Arm at this point are more likely to be posturing; a negotiating tactic to ensure favourable treatment from whatever exchange the company ends up on.

Ultimately, Softbank’s most likely route is a US flotation with a secondary British listing. While ministers have been lobbying for a full return to the London Stock Exchange, this would be enough to qualify as a success. Keeping at least part of Arm in the UK would be the right thing to do.

‘A secondary British listing would be enough to qualify as a success’