That is what it is
Arm to list in New York not London + Podcast bonus content + Other stories that matter
“That is what it is.” That is what David Schwimmer, chief executive of London Stock Exchange Group, said on Thursday about companies with most of their operations in the US choosing to list in New York and not London. He made the comment after it emerged that CRH, the Dublin-based building materials group, is planning to move from London to New York.
Softbank has now confirmed that Arm, the Cambridge-based chip designer, will float in New York and not London too. This is despite a charm offensive by Rishi Sunak’s government designed to encourage SoftBank, the Japanese owner of Arm, to come to London.
This is the latest in a series of blows that London’s status as a financial hub has suffered in the last few days. As well as CRH and Arm:
-Shell explored moving its listing from London to New York, the Financial Times reported. Story here
-Flutter Entertainment, owner of Paddy Power and Betfair, said it is considering a US listing and its shareholders are supportive. More here
-Pearson, the education publisher, has declined to rule out a move to New York in the future. “We don’t have any plans at the moment but where anything makes sense for our stakeholder groups of course we consider it,” Sally Johnson, chief financial officer said. Full story here
These stories have already prompted much introspection about the status of the City. “London Dealmakers Say Move to Wall Street From The City Is Just Starting,” says the headline of a Bloomberg piece here. “‘There are no domestic equity investors’: why companies are fleeing London’s stock market”, writes the FT here
These headlines make Schwimmer’s comments seem alarmingly laissez-faire. So should we be concerned about these stories? (Just to clarify, the gif above is not the LSE boss making the point, but a scene from The Office in the US that I couldn’t resist including…).
It is undoubtedly a setback for the financial status of the City and London when a company chooses to list elsewhere. But it is hardly a secret that New York has been a more lucrative place to list a technology business in recent years, with the owners of those companies getting a higher valuation for their shares than they would have in the UK (and the executives getting higher remuneration). Even Manchester United has been listed in the US since 2012.
CRH is following a trend set by rival Ferguson in moving its primary listing to New York. Furthermore, worrying about where Softbank boss Masayoshi Son chooses to list Arm seems like a fool's errand. Softbank posted a loss of $5.9 billion for the final three months of 2022 alone. Son has more important things to think about than the financial status of London. He wants to get the highest valuation for Arm that he can. Few would argue that he has a better chance of doing that by listing the shares in London over New York, where other chip companies like Nvidia are based.
The status of the City does matter, of course. It affects how businesses and investors think about whether to spend in the UK. A company moving its listing to another country also means the UK can lose some of the economic benefits that come with a listing, such as the presence of advisers, fund managers and the meetings they will host here, as well as the revenue generated by trades in the business.
But the UK should be more concerned with encouraging home-grown innovation and helping promising start-ups than fighting to attract foreign-owned companies or companies with most of their operations overseas to list in London. That is where the jobs of the future will come from. Why are there more tech companies listed in New York than in London? It’s because there are far more American tech businesses than British ones. The sentiment suggested by that Schwimmer quote isn’t far wrong.
Podcast bonus content…
The latest episode of Business Studies went live on Tuesday. You can listen here on Substack, here on Apple and here on Spotify.
The episode features an interview with Erik Fairbairn, chief executive of Pod Point, one of the largest providers of electric car charging points in the UK. Fairbairn discusses the state of the electric car industry in the UK and answers criticism about the lack of charging points in the UK, their cost, and their reliability. He also describes how he set up Pod Point when there were barely any electric cars on the road.
Fairbairn is confident about the progress that electric cars are making and expects the UK government to hit its target of all new car sales being electric by 2030. Indeed, he was complimentary about the role of the government in supporting the industry, despite the criticism it has faced. He also dismissed comparisons with Norway, where the take-up of electric vehicles is so much higher. Questions about the government’s support for the industry are particularly relevant this week because it was reported that Jaguar Land Rover is looking for more than £500 million of financial support to build a new battery factory in Somerset. The company has said it could build the factory in Spain rather than the UK. You can read more on that story in the Financial Times here.
This is what Fairbairn said when asked him whether he thought the government had been unhelpful for the electric car industry given it has reduced subsidies and increased tax, particularly when this is an industry that could deliver highly-skilled jobs at new battery and vehicle factories:
“No, I think that's quite an unfair assessment of what the government has done. I guess I'm looking at the government over the past decade really. I can remember a time when there was £5,000 off an electric vehicle from the government, I remember a time when we could get effectively a free home charge via the government. But as the number of electric vehicles purchased went from 0 per cent of new car sales to where we are today at 20 per cent of new car sales, the government has sensibly wound back the direct fiscal incentive. Generally speaking the government shouldn't be supporting an industry that has got 20 per cent adoption of consumer demand. That's exactly the right time that a government should be pulling out of direct fiscal incentives.
What the government is still doing, however, is what I call indirect incentives. So in order to get planning to build any new developments, whether that's residential or commercial, you have to have charging points all over that new development. That's not costing the public purse anything but that is just making sure that this happens.
There are just a few cases where I think there is some breakdown of standard commercial thinking where maybe the government might want to get involved. The obvious one for me is that certain strategic locations around the UK need massive reinforcements of the electricity grid in order to support the amount of charging we need over the next 10 years.
Let’s take a motorway service station as a good example. First of all you saw one charging point, now you go to a motorway services and you see 30. But we're not going to need 30 charging points to those locations, we're going to need 300 undercharging points at those locations. That is a big old grid connection.