Nasdaq’s Surprisingly Tough Fight for the Year’s Marquee IPO

Nasdaq Inc. may be the coveted destination for tech companies looking to go public. But the exchange had to pull out all the stops to lure chip designer Arm Ltd., likely to be the largest initial public offering of the year.

(Bloomberg) — Nasdaq Inc. may be the coveted destination for tech companies looking to go public. But the exchange had to pull out all the stops to lure chip designer Arm Ltd., likely to be the largest initial public offering of the year.

The proposed listing sparked a remarkable, behind-the-scenes scrum involving heads of state, exchange officials and the billionaire founder of SoftBank Group Corp., and was furiously contested across three continents for months. Nasdaq Chief Executive Officer Adena Friedman and her team ultimately triumphed with a proposal that included a stunning $50 million joint marketing package and guidance on inclusion in the Nasdaq 100 index, according to people familiar with the matter. 

She and her Nasdaq colleagues had to step up to fend off stiff competition from British Prime Minister Rishi Sunak and supporters of a dual listing with the London Stock Exchange, as well as a surprisingly aggressive, last-ditch effort from New York Stock Exchange President Lynn Martin, the people said. 

Such heated interest in the semiconductor company’s debut is a sign of growing interest in the technology — especially amid a shortage of strong IPOs. SoftBank, which owns Arm, is testing investor appetite for raising as much as $10 billion in the IPO, Bloomberg has reported. 

“It helps Nasdaq’s image,” said Owen Lau, an analyst with Oppenheimer & Co. “The IPO market has been pretty dreadful since last year. And people were looking for a catalyst, for a high profile deal that could jump start the market.”

While Nasdaq is often considered the premier destination for tech debuts, the NYSE attracts many of the bigger IPOs from established companies. Of the 10 largest tech IPOs in the US over the last decade, seven of them went to the NYSE, including Uber Technologies Inc. and Snap Inc. 

SoftBank has not publicly confirmed its choice of exchange, although it did disclose that Arm filed confidentially for a New York offering. SoftBank declined further comment for this story.

The path to Arm’s IPO began after SoftBank abandoned a deal to sell the business to Nvidia Corp. in February 2022. In a conference call at the time, SoftBank founder Masayoshi Son explained his backup plan was to take Arm public, and he responded to a question about where the listing would take place.

“The US, that’s the market that we are looking at when it comes to listing Arm,” Son replied at the time. “And most likely Nasdaq.” 

In the months that followed however, the Japanese billionaire retreated from that initial idea under repeated appeals from the UK, first from Prime Minister Boris Johnson and later Sunak. The current leader and his advisers argued that Arm, originally founded in Cambridge and previously listed on the LSE, would get an enthusiastic homecoming. They advocated a dual listing in London and New York.

Son asked Arm Chief Executive Officer Rene Haas and Chief Financial Officer Jason Child to negotiate the best listing deal they could. They, in turn, enlisted Pat Healy, a consultant at The Issuer Network who specializes in advising companies planning IPOs, for support in negotiations with the exchanges. 

In the heart of the negotiations, Sunak and his team peppered Haas and Child with calls, and the SoftBank team grew increasingly serious about the twin listing, the people said. Sunak welcomed Haas to 10 Downing Street to discuss the matter in December and Son joined by video conference. Son was impressed by the prime minister’s passion and detailed understanding of Arm’s business, the people said.

Sunak’s office declined to comment on any specific company discussions. The prime minister’s transparency report shows he met with Arm and SoftBank that month. 

Senior staffers at SoftBank largely opposed the dual listing because of the additional costs and complexity, but they worried Son was susceptible to the charm and personal appeal of the British prime minister. 

Beyond money and support, SoftBank wanted multiple exemptions to list in London, including one involving related-party transactions. The LSE requires companies to get shareholder approval for any related-party transactions, but SoftBank sought an exception so it could simply disclose such transactions without explicit approval, the US standard. One concern was that SoftBank has investments in hundreds of tech companies and it didn’t want to have to seek investor approval every time Arm wanted to do business with one of them.

Rahm Emanuel, the US Ambassador to Japan, took the unusual step of getting involved to make the case for the US, as a counterbalance to the Sunak effort. The former mayor of Chicago, who also worked in the White House and in investment banking, met with Son and his lieutenants more than a dozen times, according to the people. Emanuel repeatedly relayed the view that Arm would be “penalized, not rewarded” for a joint listing on LSE. 

He worked with Friedman and Nasdaq staff on research to show that dual-listed stocks tend to underperform their peers over time. The report analyzed a group of more than 550 companies with valuations between $10 billion and $50 billion, drawing comparisons between stocks listed solely in the US, US ADRs with a foreign listing and US ADRs with a London listing. It concluded that stocks listed only in the US had 2.5 times greater trading volumes, about three times more liquidity and two times higher median price-to-equity valuation. 

“US-listed peers have tighter spreads, higher valuation and greater liquidity than US American Depository Receipts with a foreign listing,” read the report produced for SoftBank, which was reviewed by Bloomberg. Plus, “there are additional costs to consider,” such as producing financial statements under US and UK standards, stated the document. 

In February, Friedman flew to Tokyo and met with the SoftBank founder face to face to advocate for the exclusive Nasdaq listing. 

By March, SoftBank and Arm were leaning toward that outcome, in part because they couldn’t get the related-party transaction exemption they sought. But they leveraged the competition from the UK to press for concessions from Friedman and her team, including lieutenants Nelson Griggs and Jeff Thomas. They were quick to secure the ARM ticker, which the NYSE had originally reserved, the people said.

More complicated were the $50 million marketing budget and Nasdaq 100 issue, according to the people. SoftBank wanted more discretion over allocating the money to events it favored, and it wanted Nasdaq’s backing on certain criteria so the chip designer would have the best chance to be included in the index. A Nasdaq 100 listing is desirable because it draws support from many of the largest institutional investors.

It was in early April, while Nasdaq and Arm were trying to resolve these last issues, that the New York Stock Exchange made its last-minute surprise appeal. The rival bourse came on strong with money and support, which “made Arm hit pause,” according to one of the people. The NYSE declined to comment for this story.

After more negotiations on detailed conditions, Friedman and her team agreed to the key terms raised by Haas’ team, the people said. Arm got more influence over how the $50 million marketing budget, which includes money and credits for certain events, would be applied, the people said. It also got reassurances the exchange would support Arm’s efforts for Nasdaq 100 inclusion based on certain criteria. Nasdaq declined to comment.

Friedman and the Nasdaq exchange made no promises about including Arm in the 100 index and any such decision would be made only on the merits, said another person close to the situation. 

The index, considered a global barometer for tech standouts like Apple Inc. and Microsoft Corp., is reshuffled annually in December, with many companies seeking inclusion. The smallest companies in the index now are Sirius XM Holdings Inc., Lucid Group Inc. and Rivian Automotive Inc. It’s unlikely Arm would be included in the Nasdaq 100 this December, but next year looks more likely based on the eventual timing of the listing, the people said.

Andrew Bond of Rosenblatt Securities said the criteria for the Nasdaq 100 are defined in substantial detail so there’s little room for concessions. Any firm would have to fall into one of the index’s industry buckets, reach certain trading metrics, and its business would have to be a certain size. Arm “clearly fits the bill,” Bond said.

In any case, snagging the Arm IPO is a significant victory for the exchange, he added. 

“In an environment where we aren’t seeing many IPO’s, this one matters,” he said. “Historically, Nasdaq was looked at purely as a tech exchange for listings, and NYSE was the behemoth in the room with everything else of meaningful size.”

–With assistance from Ellen Milligan and Dinesh Nair.

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