CommentArm, London’s missed opportunity

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Seven years ago, SoftBank shocked the city of London by privatizing Arm Holdings.

At the time, takeovers of large companies were less common and SoftBank was relatively unknown in the UK.

This decision came just a few weeks after the vote to leave the European Union, a half-excuse for this distraction on the part of the financiers. At the time, however, there was a feeling of muted indignation.

Against all odds, Britain had produced its own homegrown technology success story, enriching shareholders since its 1998 IPO – and now it was being sold to foreign interests.

For Arm’s early institutional investors, the buyout was bittersweet: before SoftBank acted, Arm was worth £16.8 billion, but the Japanese investment fund was willing to pay a 43% premium. compared to the stock market price.

So the deal was done for £24 billion (or $32 billion at the time), and investors got an idea of what might have happened if the company had been able to enjoy another decade as a as a listed company.

Stuart Chambers, Chairman of Arm at the time, said: “The board believes this is an attractive offer for Arm shareholders, which ensures the delivery of future value today. ‘today and in cash. The Arm Board is reassured that Arm will remain a very important British company and will continue to play a key role in the development of new technologies. »

As Arm returns to listed markets, with a higher valuation than that initially paid by SoftBank, it is not the British Stock Exchange that will benefit.

If, as seems likely, the share price ‘explodes’ on the first day of trading, it could be even more galling for UK fund managers.

Was Arm sold too cheaply in 2016? In the case of tech companies, valuations tend to be high anyway, and in 2016 the artificial intelligence gold rush wasn’t really on our radar.

At the time, the premium offered by SoftBank was justified by the potential of the “Internet of Things” – the idea that your home appliances would all be seamlessly connected to each other.

At the time of the takeover in 2016, SoftBank chief executive Masayoshi Son said he was willing to “bet” on Britain despite the obvious blow to its global reputation from Brexit.

To this end, he assured then-British Prime Minister Theresa May that Arm’s headquarters would remain in Cambridge, where the company is still based.

SoftBank also committed to doubling the company’s headcount in the UK, which did not happen after this year’s layoffs.

Politically, it’s hard to feel sorry for the current conservative administration.

In power for 13 years and potentially on its way out, it desperately needed a “win” before SoftBank decided to list almost 10% of Arm in New York and not London.

Lucky politicians tend to make these things happen, and there is no doubt that intense lobbying went on behind the scenes.

British investors also desperately needed a win after a series of lackluster tech-focused IPOs.

New IPOs are rare, and it’s hard to imagine the kind of frenzy surrounding Arm’s listing.

London has fallen in the financial rankings since 2016, when Arm was bought, and New York has gained ground.

At the same time, other London-listed companies have threatened to move their primary listings to the United States or have already done so.

It is difficult for the City of London to compete with the liquidity and glamor of the Nasdaq and the New York Stock Exchange, but there is no escaping the feeling of unease surrounding the British market as 2023 draws to a close.

Investors are wary of IPOs and the market lacks exciting stories. Politicians are desperate to reverse the trend.

From London, the best we can say ahead of the introduction of Arm is ‘we wish you well’ and make sure it generates money for the UK and ensures Cambridge remains a hub of innovation.

It is flattering to see a British company evolving on a theme, artificial intelligence, which has brought other star stocks to the stock market, like the American Nvidia.

It is also reassuring that SoftBank is only selling part of Arm to American investors.

This article is originally published on morningstar.fr

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