UK officials weigh national security grounds to force London IPO for Arm

The UK government has debated the use of national security legislation as a means to convince SoftBank to list Arm in London, as the Japanese investor reconsiders holding an IPO for the chip designer exclusively in the US.

Two people familiar with internal government discussions said it had weighed applying the UK’s new National Security and Investment Act, but has not formally done so. Some government officials have pushed back against the idea of invoking the law, believing it would not be applicable as the proposed listing was not considered an acquisition.

Government officials said they had preferred attempts at persuasion. Lord Gerry Grimstone, Britain’s investment minister, has met with Rajeev Misra, head of SoftBank’s $100bn Vision Fund, according to people briefed on the efforts, while Prime Minister Boris Johnson sent a letter to SoftBank executives.

A person involved in the discussions said the UK government had so far used “carrots” rather than “sticks” in the talks and had offered to provide Arm subsidies on research and grants. This person added that officials have not made specific threats and that their message was more akin to “you don’t want to make an enemy out of us”.

The interventions reveal how retaining Arm’s image as a UK success story has become a hot political issue, amid criticism that British markets are no longer an attractive home for globally significant tech companies.

Before SoftBank’s purchase in 2016 for $32bn, Arm was dual listed, with its primary stock held on the London Stock Exchange and secondary stock held via American Depositary Receipts in New York.

Representatives of the Japanese investment group have held a series of talks with UK ministers and officials in recent weeks, after SoftBank’s founder Masayoshi Son announced plans to return Cambridge-based Arm to the public markets.

The intense lobbying has led SoftBank to reopen the door to a listing in London to complement a principal listing in the US, according to multiple people familiar with the situation.

A spokesperson for the culture department said Chris Philp, technology minister, had not raised national security concerns with SoftBank. Both SoftBank and the UK’s business department also denied Lord Grimstone had raised the NSIA with the Japanese company. 

But a person familiar with ongoing talks said SoftBank executives became aware of the UK government’s discussions about potentially using the NSIA in future, considering it a ploy to push Arm towards a London listing.

This aggravated some of SoftBank’s leadership, the person said, as the move made little business sense because the US market is by far the most liquid and is where most prospective investors are based.

Another person who has worked with the government on the law said while the decision to launch an IPO would not itself be enough to allow the business secretary to intervene, if a foreign company took a significant stake in Arm following the listing, that could trigger a notification to the government. At that stage, the UK could attempt to block that stake or ask for it to be unwound.

People close to discussions said the listing venue does not have to be picked for several months and no final decisions have been reached.

A dual IPO, which would raise dollars and sterling, would be a modest win for UK officials, who fear a further weakening of the British tech sector and knock-on effects for banks, analysts and advisers.

The NSIA gives the secretary of state the power to call in transactions they “reasonably suspect give rise to or may give rise to a risk to national security”, according to a business department (BEIS) document.

If deemed “necessary and proportionate”, the minister is then able to “impose certain conditions, block or unwind it completely”.

The UK government has so far “called in” 17 transactions. The first to be made public was an examination of the takeover last year of Newport Wafer Fab, in Wales, by Nexperia, a Dutch subsidiary of Chinese company Wingtech, and the second was French telecoms group Altice’s majority stake in the telecoms group BT.

Arm lies at the heart of the global tech industry. Its chip design IP is licensed to semiconductor companies and electronic manufacturers around the world and used in more than 90 per cent of smartphones.

A successful listing at a targeted valuation of at least $50bn is critical to SoftBank, whose Vision Fund last month posted a historic investment loss of Y3.5tn ($26bn) after its portfolio companies were hammered by regulatory crackdown in China and a global sell-off in technology shares.

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