Fears for the future of the London stock market are mounting after SoftBank and the world’s largest building materials group shunned the City in favour of New York.
SoftBank this week rejected a London listing for Cambridge-based chip designer Arm despite an intense lobbying effort from three successive UK prime ministers, said two people with knowledge of the discussions. The Japanese group has long looked to a US listing as the best chance to recoup the $32bn it spent buying Arm in 2016, given the higher valuation US investors put on tech stocks.
Arm’s chief legal officer Spencer Collins had informed City minister Andrew Griffith on Wednesday, one of them said. SoftBank and Arm confirmed the decision late on Thursday, saying in a statement that they had concluded a US-only listing this year was “the best path forward for the company and its stakeholders”, while adding it would still consider a secondary listing in London “in due course”.
The decision to concentrate on a single primary listing in New York will be a personal blow for prime minister Rishi Sunak, who held a meeting with SoftBank boss Masayoshi Son and Arm chief executive Rene Haas before Christmas to lay out the benefits of listing in London.
Arm was put off by a rule that requires UK-listed companies to disclose all related-party transactions, potentially forcing it to report dealing with any other companies SoftBank has a stake in, said one person familiar with the decision. The cost and complexity of seeking full primary listings in both countries also led to the decision to pick New York, the person added.
On Thursday, £30bn building materials giant CRH also set out plans to move its shares to the US, where it generates the bulk of its profits and expects to benefit from president Joe Biden’s plans for infrastructure investment.
Shares in CRH, which has worked on large construction projects across the US, Europe and the UK, jumped as much as 9 per cent as analysts said the group would command a higher valuation in New York. Analysts at UBS said shifting the listing to the US could lead to a “multiple re-rating given US peers trade on roughly 25x [price to earnings] vs CRH on 13x”.
Asked about the move by CRH, David Schwimmer, chief executive of the London Stock Exchange Group, said: “If companies are going to make decisions when most of their business is in the US, that sort of is what it is.”
The planned exit comes at a difficult juncture for London’s capital markets, which over the past two decades have failed to attract the biggest tech companies. The challenge facing the market has deepened during the past year as a wave of listed groups have been acquired.
CRH’s decision echoes that of Ferguson, the plumbing and heating supplier formerly known as Wolseley, which last year moved its primary 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 chief executive, told the Financial Times that if the move was approved by 75 per cent of shareholders, the company would “consider switching our primary listing”. Early 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 had explored moving the Anglo-Dutch energy group to the US.
Anthony Browne, Tory MP for South Cambridgeshire, many of whose constituents work at Arm, said its listing decision was a big blow.
“It is a major part of our national security . . . but the problem with listing overseas is that where the investors are, the jobs 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 cannot resist the powerful gravitational pull of the US stock markets.”
The London market has been hit recently by a wave of takeovers and take-private deals that have stripped it of companies including Aveva, Micro Focus and cyber security company Avast.
While CRH pointed to its expanding operations in America, the deeper pool of capital in the US is also a huge draw. Bloomberg first reported this week that Arm had decided on a sole US listing.
The steady erosion of London’s status has prompted the UK government to set out reforms to safeguard the future of the City of London, ranging across banks, insurers, brokers, exchanges and investors, and aiming to redraw rules for asset classes from cryptocurrency to infrastructure and equities.
Additional reporting by Oliver Barnes, Laura Noonan and Nikou Asgari in London
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