NNow the lobbying battle to persuade SoftBank of Japan to relist Arm Holdings in London is becoming zany. The government, reports the Financial Times, has considered using the six-month-old National Security and Investment Act to compel SoftBank to choose the UK stock market, rather than Nasdaq in New York, as the next home for Cambridge’s finest computer chip designer. One hopes ministers and officials had a lie-down in a darkened room after discussing the proposal. It won’t fly.
The security act wasn’t intended for this kind of work. Blocking contentious mergers and acquisitions – or, potentially, preventing French billionaire Patrick Drahi from adding to his 18% stake in BT – was more the intention. While Arm’s microprocessor technology has defense uses, it’s one hell of a stretch to say the UK’s national security would be imperilled if Arm was listed on a stock exchange belonging to our major nuclear ally.
US officials could reasonably point out that, if the UK was really bothered about long-term ownership of Arm, Theresa May’s government in 2016 should not have approved the sale to private Japanese ownership in the first place, all the while singing deluded songs about a Brexit “vote of confidence” from abroad. That was the original mistake.
The fight to host Arm’s listing is definitely worth pursuing, of course. The company is chip designer to the world and, at £40bn-plus, would do more for London’s and the UK’s credentials as a tech-friendly place than a thousand limp IPOs from the likes of Deliveroo; Arm represents proper tech. But the only way to win is on merit.
Two arguments would seem to have a chance of persuading Masayoshi Son, kingpin at SoftBank, that he could get full value for Arm in London. First, there is a living example of a highly valued European tech company outside the US stock markets. ASML, the Dutch maker of machines central to the progress of the semiconductor industry, is worth €190bn (£164bn) in Amsterdam and recognized globally as the best in its field.
Second, a primary London listing plus US-listed depositary receipts offers a “best of both worlds” option. Arm would have a top-20 place in the FTSE 100 index, but US investors would be free to play via the familiar (to them) depositary mechanism. Arm, before SoftBank’s takeover, was listed that way and half the companies in the Footsie have US depositary receipts. The setup works.
Critically, though, the arrangement falls flat the other way around. A secondary, or standard, listing in London gets ignored. The US firm Vantiv, after plucking Worldpay from the FTSE 100 in a cash-plus-shares deal in 2017, tried it and quickly dropped the UK end on the grounds that nobody was trading its shares in London. So did Verizon after buying Vodafone’s US assets in 2014.
One still suspects Son will stick to his stated preference for New York “the center of global hi-tech”, as he called it. It is the safe option from the point of view of a seller. But SoftBank officials haven’t made similarly inflammatory remarks recently. London may be in the game still. But threatening to twist security laws to suit commercial ends is surely guaranteed to fail. The implied message of weakness would send every other UK tech firm scuttling off to New York.
JD Sports reforms have to be better than fudge
Peter Cowgill, JD Sports’s guiding force as executive chairman for two decades, has gone and the sportswear-cum-fashion retailer is in reforming mode, covering everything from “formalisation in governance systems” to “mechanisms for reporting relevant matters to the regulatory authorities” . After two run-ins with Competition and Markets Authority in recent months, one should hope so too.
Investors, including 55%-shareholder the publicity-shy Rubin family, won’t grumble as long as the extraordinary profits keep coming. On that score, interim chair Helen Ashton was full of reassurance: pre-tax profits in the current year will be “in line” with the £947m knockout achieved last time, which was double the previous record. JD had an excellent lock-down period.
In that context, the company’s policy on returning the UK government’s Covid furlough support is a fudge. JD has repaid the £24.4m it received in the 12 months to January this year, but is keeping the sums received in the first pandemic year, understood to be £61m. There is no obligation to repay, it should be said, even when profits have boomed. But the halfway house approach is neither one thing nor the other. One hopes the governance reforms will be more fully-throated.