Japanese owner of British tech giant Arm tells Wall St banks: Back £6bn loan or miss out on float bonanza
- Masayoshi Son, the founder of Softbank, bought Cambridge-based Arm, one of Britain’s most successful tech companies, in a £24bn deal in 2016
- He tried to sell the chip designed four years later but the sale fell apart amid scrutiny from regulators around the world concerned about competition
- His latest move has sparked bitter protests from critics who believe the company, which has a strong British heritage, should be listed on the LSE
Arm’s Japanese owner is asking banks to guarantee a £6bn loan as they jostle to win lucrative fees in the UK tech giant’s float. Softbank bought Cambridge-based Arm, one of Britain’s most successful tech companies, in a £24bn deal in 2016.
Despite painting himself as a longterm owner, Softbank founder Masayoshi Son attempted after just four years of ownership to sell the chip designer to US rival Nvidia for £31bn.
The sale fell apart amid scrutiny from regulators around the world concerned about competition and national security. Son now plans to float Arm on the tech-dominated Nasdaq stock market in New York.
Masayoshi Son, the founder of Softbank, bought Cambridge-based Arm, one of Britain’s most successful tech companies, in a £24bn deal in 2016
That has sparked bitter protests from critics who believe the company, which has a strong British heritage, should be listed on the London Stock Exchange, as it was before the takeover by Softbank. Arm is likely to be valued at around £36bn in a flotation. In the run up to the float, Softbank has been asking banks to underwrite a so-called margin loan of around £6bn, according Bloomberg.
The revelations will add to the controversy over Softbank’s behaviour. Big investment banks will be ultra-keen to win themselves a role advising on the Arm float. So-called initial public offerings (IPOs) of that size represent a huge jackpot, with companies paying out hundreds of millions of pounds in fees to a roster of advisers.
However, the potential link with the margin loan – where the borrowing would be partly secured against shares in the float – will create accusations of unfair pressure. Banks wanting a slice of the fees may fear missing out if they decline to underwrite the loan. Son, 64, is already under fire for suggesting he plans to list Arm in the US, despite its deep roots in Britain, where it was originally a spin-off from Cambridge University.
The company, whose chip designs are in billions of products made by leading manufacturers including Apple, is hugely important for the UK’s tech sector. If Softbank shuns the London stock market it would be a bodyblow to the Government’s hopes of luring more tech firms to list in the City.
If Softbank shuns the London stock market it would be a bodyblow to the Government’s hopes of luring more tech firms to list in the City
Former European commissioner for financial services Lord Hill was commissioned by the Treasury to conduct a review into how to reform the UK stock market regime to make it more attractive to tech entrepreneurs. Many have veered to the US because of the lighter governance rules there and because they believe their businesses will be more richly valued.
A line-up of heavyweights – including Hermann Hauser, one of the firm’s founders, and City grandee Ken Costa – have weighed in to say Arm should float in London.
Chancellor Rishi Sunak and Business Secretary Kwasi Kwarteng are facing calls to ensure a London listing. Son, who said he is aiming for ‘the biggest IPO ever in semiconductor history’ has signalled he favours Nasdaq, though no final decision has been made.
Softbank has tied advisory roles on floats to margin loans on a number of occasions in the past. This type of lending is considered risky because it exposes lenders to large possible losses if the value of the shares pledged as security goes down. Tech shares listed on both sides of the Atlantic have had a torrid time in recent weeks.
A number of companies that recently floated in London have seen their prices tank, including Deliveroo, Pensionbee and The Hut Group. However, some recent US listings, such as dating service Bumble and electric vehicle manufacturer Rivian, have also fallen.
Tech stocks including Zoom and Netflix soared during the pandemic but have since fallen back. The sector has been hit by fears it will suffer from rising interest rates, which make other investments look more attractive.