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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is a former global head of equity capital markets at Bank of America and now a managing director at Seda Experts
“Every time a friend succeeds,” said Gore Vidal, “I die a little.” This must be how the champions of London’s stock market feel as Arm’s share price soars into the stratosphere.
The UK chip designer debuted on Nasdaq in September, and after a so-so start, Arm shares have bounded ever higher. Before slipping a little in recent days, the stock nearly doubled after it reported earnings 10 days ago owing to higher revenue forecasts amid skyrocketing demand for artificial intelligence applications.
The UK government and the City had lobbied SoftBank, which had taken Arm private in 2016, to relist it on the London Stock Exchange. When Arm eventually announced it was pursuing a “US-only listing”, it triggered a Benedictine bout of self-flagellation in London financial circles.
And now with Arm’s vertiginous stock price rise, the sense of missed opportunity has grown more acute. Since the IPO, Arm has added $80bn in market capitalisation, meaning that public investors (who own about 10 per cent) sit on about an $8bn gain. If Arm had listed in London, much of that value would have accrued to British pensioners and investors.
The stock spike probably involved some combination of covering of short positions, limited free float, and paroxysms of AI ecstasy. But SoftBank must feel vindication in its choice of exchange.`
If ever there was a case showing the compelling public interest in reviving London as a listing exchange, this is it. Although SoftBank made the right call in choosing Nasdaq, there’s no reason why Arm couldn’t have thrived similarly in London. Moonshot investments can happen on any serviceable stock exchange. You just need a great company and a listing venue that global investors can access.
After all, Copenhagen-listed drugs firm Novo Nordisk has become Europe’s most valuable quoted company on the back of its popular weight-loss medicines. Its share price has quadrupled over the past three years. Meanwhile, Dutch fintech leader Adyen listed on Amsterdam in 2018, and within three years its stock had risen 11-fold before recent falls. These stock exchanges are much smaller than London. It’s the team on the pitch, not the size of the stadium, that matters most.
Moreover, London has the capacity to absorb humongous share sales. Blackstone and Thomson Reuters sold nearly £7bn of shares in financial data firm LSEG (the parent of the London Stock Exchange) in three overnight placements last year. There’s a lot of money available for the right story in London. So while a Nasdaq listing suits a global chip leader like Arm, the LSE would’ve been easily good enough. To paraphrase Marlon Brando in On the Waterfront, London “coulda been a contender”.
Unfortunately, the UK dropped the ball. The 2016 Brexit referendum vote walloped the value of sterling, enabling foreign buyers to pick up champagne British assets at beer prices. This gave SoftBank an opening to make an opportunistic approach. The really big goof happened when Theresa May’s government negotiated post-offer undertakings with SoftBank: her team wrangled a commitment to keep Arm’s headquarters in Cambridge and to double domestic headcount, but didn’t insist on a UK exchange listing in case of any future flotation. Oops.
London can ill-afford these blunders because, for all its qualities, it lacks a unique selling point or USP. Global investors can invest just as easily on other developed market exchanges. What does London offer that other financial centres don’t?
Prestige? Overrated, and anyhow Brexit has damaged the UK’s international standing with many investors. Weight of domestic money? Nope. According to ONS figures, pension and insurance funds hold only 4.2 per cent of listed UK shares, while foreigners hold 57.7 per cent.
Regulatory regime? Proposed UK listing reforms clear away much red tape, but Amsterdam offers a more welcoming vibe: Prosus, Europe’s 11th most valuable quoted company, listed in Amsterdam in 2019 when it was spun out of South Africa’s Naspers. It wouldn’t have qualified for a premium London listing under the business control rules because its biggest asset is a minority stake in Tencent.
Cost? You’re having a laugh. The UK charges 0.5 per cent stamp duty for share purchases while the US and Germany have no such levy. Stamp duty is a drag on stock market liquidity and makes it cheaper to invest abroad. Rip-off Britain isn’t a great advertisement for London equities.
Arm’s success on Nasdaq means that London now must prove why it’s better than other trading venues. The City can’t rest on its laurels any longer.
