New York pushes aside London in Battle of Financial Centers

Arm chose to list in New York primarily because of the larger scale and more robust liquidity of US markets, and it will decide between the NYSE and the Nasdaq in the coming weeks, according to people familiar with the company’s thinking.

A US IPO is “the best way forward for the company and its stakeholders,” Arm Chief Executive Rene Haas said Friday.

New York and London have battled for decades to become the largest capital markets in the world, alongside other financial centers such as Hong Kong, Singapore and Tokyo. In the mid-2000s, a deregulation drive in the UK led to hand-wringing in New York over a possible loss of competitiveness. Executives feared that London would overshadow Wall Street in attracting large companies to list the stock market, sell bonds and trade securities.

But over the past decade and a half there has been a shift in fortunes to the US. Inc.,

Microsoft Corp.

and Tesla Inc.

Arm is one of the world’s most important behind-the-scenes semiconductor companies. Its technologies power the chips in more than 95% of smartphones and UK authorities have fought for months to convince owners to list the company in both London and New York.

Owned by Japanese technology investment firm SoftBank Group Corp.

9984 -0.48%

Arm abandoned sales plans to the American chip company Nvidia last year Corp.

The listing is a back-up plan championed by SoftBank founder Masayoshi Son to extract maximum value from the company. Arm was 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 number, hoping a booming chip industry and comparisons to US-listed chip companies will boost Arm’s appeal. At that size, it would rank near the top 10 stocks in the UK, but only around 150th on 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 publicly traded companies on the NYSE and Nasdaq was $40.3 trillion, about 13 times the $3.1 trillion on the London Stock Exchange,

LSEG 1.94%

This is according to data from the World Federation of Exchanges. Ten years earlier, the combined market capitalization on the two US exchanges was about six times the total market capitalization of LSE, according to data from WFE.

“They come here because this is where the money is,” said Lou Pastina, managing member of Global Markets Advisory Group, a New York-based consulting firm.

By contrast, UK markets are still dominated by slower growing banks, energy companies and consumer names. Many, such as HSBC Holdings PLC, BP ​​PLC and British American Tobacco PLC, have histories dating back to when the UK was a colonial empire. The few tech companies are small and not comparable to Arm.

A major driver for companies favoring New York listings is the higher valuation investors give to companies. Many US-based institutional and individual investors with deep pockets don’t allow themselves to buy securities on foreign exchanges or can’t be bothered to take on the currency risk and other hurdles associated with investing abroad.

The booming US economy and the growth of many foreign companies in the US also play a role

CRH PLC, a Dublin-based construction company based in London, said this week it plans to move to a New York listing. It called the shift a logical move given that the company generates about 75% of a key profit metric in North America. CRH is betting that the move will bring 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 because its US-based online gambling company, FanDuel, is Flutter’s largest by revenue. Flutter said the listing would give her access to deeper capital markets and a new source of US domestic investors.

Ferguson PLC, a UK-based supplier of sanitary equipment, made the New York Stock Exchange its main trading platform in May 2022. FactSet.

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

Julia Hoggett, CEO of London Stock Exchange, part of the London Stock Exchange Group, said Arm’s move to the US shows that the UK “needs to make rapid progress on its regulatory and market reform agenda, including tackling the amount of risk capital”. available to drive growth.”

The UK government and the LSE have proposed changes to listing rules and other measures that they hope will revive investor interest in UK markets.

London executives also blame homegrown problems that have left Britain behind New York. Brexit created uncertainty in London’s role as the financial center of Europe. Ten years ago, a wave of IPOs by mining and energy companies from the former Soviet Union flared up, scaring investors away from new listings.

Many also point to a change in how British pension funds, once huge providers of capital to the stock market, have shifted away much of their financial firepower.

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

According to the London Stock Exchange, only about a quarter of UK pension fund holdings are equities, while in the US two-thirds of US pension fund holdings are equities.

Pension funds’ departure from the stock market was partly due to regulatory changes to pension plan funding requirements to ensure they had enough money for retirees, said Ben Gold, head of investments at XPS Pensions Group,

a UK-based pension fund consultancy. That trend was boosted last fall when a surge in UK government bond yields forced funds to meet the demand for collateral by selling liquid assets, including the listed stocks that remained in their portfolios, he said.

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

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

Mereo, which has several drugs in clinical trials, raised about half of the $65 million when it went public in London in 2016. The company was later listed in the US through a reverse merger and raised nearly $200 million in two slugs. It dropped the listing in London.

By attracting Arm, the LSE would have reclaimed a company that was a mainstay before SoftBank acquired it in 2016. The exchange would bet on the listing and encourage other domestic and foreign tech companies to move to the LSE instead of just focusing on the US. mentions.

Mr Haas said Arm, founded in Cambridge, UK, plans to keep its UK headquarters where it will boost investment through a new Bristol location and a higher headcount. Arm will also continue to house its tangible intellectual property in the UK

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