After SoftBank, the largest global building materials company, moved to New York City, fears are growing about the future of London’s stock market.
SoftBank rejected a London listing of Arm, a Cambridge-based chip design company, this week despite intense lobbying efforts by three successive UK prime ministers. Two people familiar with the discussions said that SoftBank did not reject Arm’s London listing. A US listing is the best way for the Japanese group to recover the $32bn spent on Arm in 2016. This is due to the high valuation US investors place on tech stocks.
One of the two had told Andrew Griffith that Spencer Collins, Arm’s chief lawyer, had informed him on Wednesday. SoftBank and Arm both confirmed their decision late Thursday. They stated that they believed a US-only listing was the best way forward for the company and its stakeholders, while still considering a secondary listing in London.
Prime Minister Rishi Sunak will feel the pain of concentrating on one primary listing in New York. He met with SoftBank boss Masayoshi son and Arm chief executive Rene Haas to discuss the benefits of listing in London.
According to one person familiar, Arm was put off because the UK-listed companies must disclose all related-party transactions. This could potentially force it to report any dealings with other companies SoftBank holds a stake. According to another person, New York was chosen because of the complexity and cost involved in obtaining full primary listings in both the US and UK.
PS30bn building materials company CRH also laid out plans for moving its shares to the US where it generates most of its profits. It expects to reap the benefits from President Joe Biden’s infrastructure investment plans.
As analysts predicted that CRH would be able to command a higher valuation in New York, shares in CRH soared by as much as 9 percent. The group has been involved in large-scale construction projects in the US, Europe, and the UK. UBS analysts said that shifting the listing to the US could result in multiple re-ratings, as US peers trade at roughly 25x the price of earnings compared to CRH’s 13x.
David Schwimmer, chief executive at the London Stock Exchange Group, was asked about the CRH move. He stated: “If companies will make decisions when most their business is in America, that is what it is.”
This planned exit is coming at a critical moment for London’s capital markets. They have struggled to attract top tech companies over the past 20 years. As a result, the market is now facing a new challenge. A wave of listed companies has been acquired.
Ferguson, a plumbing and heating supplier formerly called Wolseley, made the same decision as CRH. CRH moved its primary listing to America last year. Flutter, a FTSE 100 gambling company, is aggressively pursuing the US. It plans to create a secondary listing in New York.
Peter Jackson, chief executive of Flutter, stated that the company would consider switching to a secondary listing if 75% of shareholders approve the move. Initial feedback from investors was positive and a US listing would bring “long-term capital market benefits” he said.
It was reported earlier this week that Shell’s top executives had considered moving the Anglo–Dutch energy group to America.
Anthony Browne, Tory MP from South Cambridgeshire, stated that Arm’s listing decision was a major blow.
It is an important part of our national security. . . But listing overseas can be problematic because jobs and research often follow the investors,” he stated.
“The government tried to get Arm listed in Britain, but money talks: Even the UK government can’t resist the strong gravitational pull of US stock market stocks.”
Recent takeovers and take-private transactions have impacted the London market. They have robbed it of companies like Aveva, Micro Focus, and Avast.
CRH emphasized its expansion in America. However, the US has a deeper capital pool which is a major draw. Bloomberg reported that Arm had made a decision to list the US solely.
London’s status is steadily declining. The UK government has set reforms in order to protect the City of London. These reforms cover banks, brokers, insurance companies, investors and exchanges. They also aim to redraw asset class rules, including infrastructure and equities.