New York Pushes London Aside in Battle of Financial Centers

Arm chose to list in New York largely because of the greater scale and more robust liquidity of U.S. markets, and it will be deciding between the New York Stock Exchange and Nasdaq in the coming weeks, according to people familiar with the company’s thinking.

A U.S. listing is “the best path forward for the company and its stakeholders,” Arm Chief Executive

Rene Haas

said Friday.

New York and London have battled for decades to be the world’s largest capital markets, alongside other financial hubs such as Hong Kong, Singapore and Tokyo. In the mid-2000s, a deregulation push in the U.K. prompted hand-wringing in New York over a potential loss of competitiveness. Executives worried that London would eclipse Wall Street in attracting big companies to list on the stock market, sell bonds and trade securities.

But the past decade-and-a-half has seen a shift in fortunes toward the U.S. Stock markets in the U.S. have skyrocketed in value ahead of peers thanks to the rise of tech-driven giants such as

Apple Inc.,

Microsoft Corp.

and

Tesla Inc.

Arm is one of the world’s most important behind-the-scenes semiconductor businesses. Its technologies power the chips in more than 95% of smartphones and U.K. authorities have fought for months to persuade its owners to list the company in London as well as New York.

Owned by Japanese tech investment company

SoftBank Group Corp.

9984 -0.48%

, Arm last year abandoned plans to be sold to U.S. chip company

Nvidia Corp.

The listing is a backup plan championed by SoftBank founder

Masayoshi Son

to extract maximum value from the company. Arm had been listed in London before SoftBank took it private in 2016 for $32 billion.

The listing in New York could value Arm at more than $50 billion, according to analysts, though SoftBank will push to get a higher number, hoping that a booming chip sector and comparisons to U.S.-listed chip companies will increase Arm’s attractiveness. At that size, it would be near the top 10 stocks in the U.K., but only around 150th-largest in the S&P 500.

New York’s dominance over London has grown over time. At the end of last year, the combined market cap of listed companies at the NYSE and Nasdaq was $40.3 trillion, roughly 13 times the $3.1 trillion at the

London Stock Exchange,

LSEG 1.94%

according to data from the World Federation of Exchanges. A decade earlier, the combined market cap at the two U.S. exchanges was about six times LSE’s total market cap, WFE data shows.

“They’re going to come here, because this is where the money is,” said Lou Pastina, managing member of Global Markets Advisory Group, a New York-based consulting firm.

U.K. markets, by contrast, remain dominated by slower-growth banks, energy companies, and consumer names. Many, such as

HSBC Holdings

PLC,

BP

PLC and

British American Tobacco

PLC, have histories stretching back to when the U.K. was a colonial empire. The few tech companies are small and not comparable to Arm.

A main driver for companies preferring New York listings is the higher valuations investors give to companies. Many deep-pocketed U.S.-based institutional and individual investors don’t allow themselves to buy securities on foreign exchanges or can’t be bothered incurring the currency risk and other hurdles that come with investing abroad.

Also at play is the booming U.S. economy and the growth of many overseas-owned businesses in the U.S.

CRH

PLC, a Dublin-based construction company listed in London, said this week it plans to move to a New York listing. It called the shift a logical step since the company generates about 75% of a key profit measure in North America. CRH is betting the move will generate more “commercial, operational, and acquisition opportunities.”

U.K.-listed sports betting and gambling company

Flutter Entertainment

PLC said last month that it was considering an additional U.S. listing because its U.S.-based online gambling business, FanDuel, is Flutter’s largest by revenue. Flutter said the listing would give it access to deeper capital markets and a new source of U.S. domestic investors.

Ferguson

PLC, a U.K.-based supplier of plumbing equipment, made the NYSE its main trading venue in May 2022. Since then, the company’s valuation multiple has expanded about 18% to trade for more than 15 times forecast earnings, according to FactSet.

“You can’t attribute all of the multiple expansion to the New York listing, but it certainly helped,” said Brian Bernard, analyst at

Morningstar Inc.

Julia Hoggett,

CEO of London Stock Exchange, a unit of the London Stock Exchange Group, said Arm’s move to the U.S. demonstrates the “need for the U.K. to make rapid progress in its regulatory and market reform agenda, including addressing the amount of risk capital available to drive growth.”

The U.K. government and the LSE have proposed changes to listing rules and other measures it hopes will reinvigorate investor interest in U.K. markets.

Executives in London also blame homegrown problems that have set Britain back compared with New York. Brexit injected uncertainty into London’s role as Europe’s financial hub. A boom in IPOs of mining and energy companies from the former Soviet Union a decade ago flamed out, turning investors off from new listings.

Many also point to a change in how U.K. pension funds, once huge suppliers of capital to the stock market, have shifted away much of their financial firepower.

In 2000, 40% of shares on the London Stock Exchange were owned by U.K. pension funds, according to the LSE. Today, 4% are. Only about a quarter of the holdings of U.K. pension funds are stocks, while in the U.S., two-thirds of American pension funds’ holdings are in equities.

The pension funds’ move away from the stock market was driven partly by regulatory changes to the pension plans’ funding requirements to ensure they had enough money for retirees, said Ben Gold, head of Investment at

XPS Pensions Group,

a U.K.-based pension-fund advisory. That trend was supercharged last fall when a sharp rise in U.K. government bond yields forced funds to satisfy collateral calls by selling liquid assets including the listed equities that remained in their portfolios, he said.

British executives say their home-country investors tend to be more risk-averse than American counterparts.

There is “a lot of experience of investing in development-stage companies” in the U.S. compared with Britain, said

Denise Scots-Knight,

chief executive of London-based drug developer

Mereo BioPharma Group

PLC.

Mereo, which has several drugs in clinical trials, raised roughly half of the $65 million it targeted when it went public in London in 2016. The company later listed in the U.S. through a reverse merger and raised nearly $200 million in two slugs. It dropped the London listing.

Mr. Haas said Arm, founded in Cambridge, U.K., plans to keep its headquarters in the U.K., where it will boost investment through a new site in Bristol and higher head count. Arm also will continue to house its material intellectual property in the U.K.

Mr. Haas said Arm would also consider a subsequent secondary listing in the U.K. “We will continue to invest and play a significant role in the British tech ecosystem,” he said.

—Stu Woo contributed to this article.

Write to Ben Dummett at [email protected], Alexander Osipovich at [email protected] and Josh Mitchell at [email protected]