SoftBank’s Arm flotation hopes hit by legal fight in China

Show caption SoftBank’s attempted sale of the Cambridge-headquartered chip designer Arm to Nvidia collapsed earlier this week. Photograph: Robert Evans/Alamy Arm SoftBank’s Arm flotation hopes hit by legal fight in China News of dispute comes as London Stock Exchange seeks to persuade SoftBank to reconsider its Nasdaq choice Mark Sweney @marksweney Fri 11 Feb 2022 15.19 GMT Share on Facebook

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SoftBank is facing a battle to float the British chip designer Arm, as it remains mired in a legal fight with the head of its Chinese joint venture, while London Stock Exchange chiefs try to persuade the company to reconsider its snub of the UK for the public listing.

The Cambridge-based company has been in dispute with Allen Wu, the head of the joint venture Arm China, since 2020 when its board voted to remove him.

Wu, who refused to stand down and retains control of the venture because of legal rights, has escalated the battle by launching a third legal action against Arm China, adding further red tape that SoftBank will need to overcome before floating Arm.

SoftBank, which bought Arm for £24bn in 2016, has been forced to turn to its backup plan of floating the company after its sale to US-based Nvidia collapsed this week on regulatory hurdles. Widespread political and industry opposition in the UK, Europe, US and China scuppered the deal.

Last month Arm, which holds a 47% stake in the joint venture, warned that it had been stopped from auditing the accounts. On Tuesday Inder Singh, Arm’s chief financial officer, admitted that the company had to resolve the issue in China to progress its plans.

“[It’s] important for us to make sure that we have certain rights that will be important for our financials,” he said. “One of those will be the continuing right to audit revenues.”

Wu’s latest legal action, first reported by the Financial Times, aims to get him reappointed to the board of Arm China, which contributes about a fifth of the company’s global sales.

Meanwhile, the SoftBank chief executive Masayoshi Son’s decision to snub the UK for the listing of Arm has caused dismay among the financial and business community.

“We think that the Nasdaq stock exchange in the US, which is at the centre of global hi-tech, would be most suitable,” Son said.

The comments have not helped the view that London is not best suited for tech listings, with it struggling to compete against other financial centres, particularly the US, where valuations are higher.

In July, Wise, an international payments transfer service, became the largest ever flotation of a UK tech company, but its share price has fallen from 800p to 570p since then.

The London Stock Exchange is expected to make a lobbying effort to convince SoftBank of the virtues of a listing in London, or to at least consider a dual listing on both sides of the Atlantic, which Arm had before SoftBank acquired the business.

The company had been a member of the FTSE 100 for 18 years before being bought by SoftBank. Winning it back would be a huge boost for the capital’s longer-term ambitions to have more tech flotations.

Analysts are estimating that Arm would float with a market value of $30bn to $40bn, which would make it the largest tech company on the London Stock Exchange, more than twice the size of the current leader Ocado.

At that scale, Arm would also rank between the 19th and 24th largest listed company in the UK.

Last year new rules were introduced to try to make London more attractive to tech companies, including allowing dual share class structures, which give founders more control after they float a business, and reducing the amount of shares required to be offered to the public to 10%.

The London Stock Exchange Group declined to comment on Arm’s flotation plans.

Last month Hermann Hauser, who co-founded Arm in 1990 and was a vocal critic of the deal with Nvidia, said an independent listing of Arm would probably attract investment from some of its largest customers.

Arm has been nicknamed the Switzerland of the semiconductor industry because of its neutral status supplying chip designs to almost every industry player. It has more than 500 clients globally, from Apple and Samsung to Qualcomm.

“If Arm has an independent future, I think you will find there is a lot of interest from a lot of the companies within the ecosystem to invest in Arm,” said Cristiano Amon, Qualcomm’s chief executive, last June. Other clients that analysts have speculated could show an interest in taking a stake in a publicly listed Arm include Apple and Taiwan Semiconductor Manufacturing Company.