New York sidesteps London in battle for financial centers

Arm chose to list in New York largely because of the larger scale and more robust liquidity in U.S. markets, and he will decide between the NYSE and Nasdaq in the coming weeks, according to people familiar with. business thinking.

A U.S. listing is “the best way forward for the company and its stakeholders,” Arm chief executive Rene Haas said Friday.

New York and London have fought for decades to become the world’s largest capital markets, alongside other financial centers such as Hong Kong, Singapore and Tokyo. In the mid-2000s, a push for deregulation in the UK sent New York cringing at the potential loss of competitiveness. Executives feared London would eclipse Wall Street in attracting big companies to list, sell bonds and trade in securities.

But the past decade and a half has seen a shift in fortunes towards the United States Stock markets in the United States have soared in value ahead of their peers thanks to the rise of tech-focused giants such as Apple Inc.,

Microsoft Corp.

and Tesla Inc.

Arm is one of the largest behind-the-scenes semiconductor companies in the world. Its technologies power the chips in more than 95% of smartphones and British authorities have fought for months to convince its owners to list the company in London as well as New York.

Owned by Japanese technology investment firm SoftBank Group Corp.

9984 -0.48%

Arm dropped plans to sell to US chip company Nvidia last year Corp.

The listing is a backup plan championed by SoftBank founder Masayoshi Son to extract maximum value from the business. Arm had been listed in London before SoftBank took it private in 2016 for $32 billion.

The New York listing could value Arm at more than $50 billion, analysts say, though SoftBank will push for a higher figure, hoping a booming chip sector and comparisons to US-listed chip companies will increase Arm’s attractiveness. At that size, it would be close to the UK’s top 10 stocks, but only around 150th in the S&P 500.

New York’s dominance over London has grown over time. At the end of last year, the combined market capitalization of NYSE- and Nasdaq-listed companies was $40.3 trillion, about 13 times the London Stock Exchange’s $3.1 trillion.,

LSEG 1.94%

according to data from the World Federation of Exchanges. A decade earlier, the combined market capitalization of the two US exchanges was about six times the total market capitalization of LSE, according to data from WFE.

“They’re going to come here, because that’s where the money is,” said Lou Pastina, a managing member of the Global Markets Advisory Group, a New York-based advisory firm.

UK markets, on the other hand, remain dominated by slower-growing banks, energy companies and consumer names. Many, like HSBC Holdings PLC, BP ​​PLC and British American Tobacco PLC, have histories dating back to when the UK was a colonial empire. The few technology companies are small and not comparable to Arm.

One of the main drivers of companies preferring New York listings is the higher valuation that investors place on companies. Many U.S.-based institutional and individual investors either cannot afford to buy securities in foreign markets or cannot be bothered by the currency risk and other hurdles that come with investing overseas.

The booming US economy and the growth of many foreign businesses in the US are also at stake.

CRH PLC, a Dublin-based construction company listed in London, this week announced plans to upgrade to a New York listing. He called the change a logical step since the company generates around 75% of a key profit metric in North America. CRH is betting that this decision will generate more “commercial, operational and acquisition opportunities”.

UK-listed sports betting and gambling company Flutter Entertainment PLC said last month it was considering an additional US listing as its US-based online gambling business United States, FanDuel, is Flutter’s largest in terms of revenue. Flutter said the listing would give it access to deeper capital markets and a new source of US domestic investors.

Ferguson PLC, a UK-based plumbing equipment supplier, made the New York Stock Exchange its primary trading venue in May 2022. Since then, the company’s valuation multiple has increased by around 18%. to trade at more than 15 times expected earnings, according to Fact Set.

“You can’t attribute all of the multiple expansion to the New York listing, but it certainly helped,” Morningstar analyst Brian Bernard said. Inc.

Julia Hoggett, CEO of London Stock Exchange, a unit of the London Stock Exchange Group, said Arm’s move to the US demonstrates the “need for the UK to make rapid progress on its regulatory reform agenda and market, including addressing the amount of venture capital available to drive growth.

The UK government and the LSE have proposed changes to listing rules and other measures which it hopes will revive investor interest in UK markets.

London leaders also blame local issues that have set Britain back from New York. Brexit has brought uncertainty to London’s role as Europe’s financial hub. A decade ago, a boom in IPOs of mining and energy companies from the former Soviet Union died down, deterring investors from new listings.

Many also point to a change in the way UK pension funds, once huge providers of capital to the stock market, have diverted much of their financial firepower.

In 2000, 40% of shares on the London Stock Exchange were owned by British pension funds, according to a February report by a think tank led by former Prime Minister Tony Blair. Today, 4% are.

Only around a quarter of UK pension fund holdings are in shares, while in the US, two-thirds of US pension fund holdings are in shares, according to the London Stock Exchange.

Pension funds’ move away from the stock market was driven in part by regulatory changes to pension plan funding requirements to ensure they had enough money for retirees, Ben Gold said, investment manager at XPS Pensions Group.,

a UK-based pension fund adviser. This trend was amplified last autumn when a sharp rise in UK government bond yields forced funds to meet collateral calls by selling liquid assets, including listed shares that remained in their portfolios, he declared.

UK executives say investors from their home country tend to be more risk averse than their US counterparts.

There is “a lot of experience investing in early-stage companies” in the US compared to Britain, said Denise Scots-Knight, chief executive of London-based drug developer Mereo BioPharma Group. PLC.

Mereo, which has several drugs in clinical trials, raised about half of its target $65 million when it went public in London in 2016. The company was later listed in the United States through a reverse merger and raised nearly $200 million in two slugs. He dropped out of the London roster.

By luring Arm, the LSE would have picked up a company that was a mainstay before SoftBank acquired it in 2016. The exchange would bet on listing by encouraging other local and foreign tech companies to go public on the LSE at rather than just focusing on the United States. Advertisement.

Mr Haas said Arm, founded in Cambridge, UK, plans to retain its UK headquarters, where it will boost investment with a new site in Bristol and a larger workforce. Arm will also continue to host its material intellectual property in the UK.

Mr Haas said Arm would also consider a subsequent UK secondary listing. “We will continue to invest and play an important role in the UK tech ecosystem,” he said.

—Stu Woo contributed to this article.

Write to Ben Dummett at ben.dummett@wsj.com, Alexander Osipovich at alexo@wsj.com and Josh Mitchell at joshua.mitchell@wsj.com