The Financial Conduct Authority has been blamed by some UK officials and SoftBank staff for London losing out to New York on the blockbuster stock market listing of chip designer Arm.
SoftBank, the Japanese owner of the Cambridge-based semiconductor company, this week dashed Rishi Sunak’s hopes of retaining the homegrown tech giant, rejecting entreaties from three successive British prime ministers to consider a dual or secondary listing in London.
Onerous FCA rules concerning the reporting of “related party transactions” were a crucial reason behind Arm’s decision, according to two people briefed on it. The complexity and cost of the process were also contributing factors.
One senior government insider said the FCA was encouraged to be flexible in its approach, but without success: “They were asked to think big but they thought small.”
Another person with knowledge of SoftBank’s decision added that the political chaos in the UK over the past year also weighed on the process.
“Regulations played a key part,” they said. “The lack of a semiconductor strategy hasn’t helped. The political upheaval came at the wrong time. They did a side by side, cost benefit analysis . . . Arm would have to do a lot more stuff to list in the UK than the US.”
The FCA declined to comment. A person familiar with the regulator’s position said it “had made some offers to Arm about flexibilities we could propose”, but added: “What we would never be able to do in any single listing is completely waive some of the really important minority investor protections, like whether directors can vote on particular transactions in which they might stand to benefit, or where they have a conflict.”
Under current rules, UK publicly listed companies must gain investor approval for any transactions with related parties — a transfer of resources, services or obligations between the company and other entities which are financially related — whereas in other markets like the US they only need to report, without seeking agreement.
The FCA had not ruled out making changes to these rules, but one person briefed on the decision said the regulator was not moving fast enough to make it feasible to do a dual listing this year.
Arm chief Rene Haas said on Thursday evening that it had engaged “with the British government and the FCA over several months” but had decided that a US-only listing was “the best path forward for the company”.
Sunak himself was briefly involved in lobbying for Arm to have a joint listing in London, but the prime minister’s allies said he had not been personally involved “for some time” and played down any sense of surprise.
One official said: “The expectation was never very high for them to list in the UK. We would have basically had to rip up listing rules and dramatically water down corporate governance standards.”
Banks are already circling SoftBank and Arm’s management for a role on its New York IPO, suggesting valuation targets between $30bn and $65bn, according to people familiar with the groups seeking to underwrite one of the most hotly anticipated deals of the year.
Obtaining a high valuation for Arm is more important than ever for SoftBank, which has suffered from successive quarters in which the value of its Vision Funds tumbled by billions of dollars.
But the move deals another blow to the UK’s capital markets, which over two decades has lost several home grown tech groups including Aveva, Micro Focus and Avast to takeovers and take-private deals.
Arm was dual listed before being acquired for $32bn and taken private by SoftBank in 2016, with primary stock listed in London and secondary stock traded on the New York exchange.
Arm said that it could consider a subsequent “secondary” UK listing in future, but those close to the company warned that this would probably depend on whether stock market rules were made more favourable.
Julia Hoggett, chief executive of London Stock Exchange, said: “We can risk over focusing on certain company by company events rather than looking at the wider ecosystem.
“Having an underlying celebration of the dynamism and risk-taking that needs to happen in any economy in order for growth to be generated is really important. I think we need to do more.”
Additional reporting by Laura Noonan and Anjli Raval in London