British microchip designer Arm is scaling back its much-anticipated New York listing, as investors value the company significantly below its Japanese owner SoftBank (TYO:9984)'s previous expectations. The company announced on Tuesday that SoftBank plans to sell between $4.4bn and $4.9bn worth of shares when it goes public on the NASDAQ next week, substantially less than the initially projected $8bn to $10bn. Despite this reduction, the flotation is still set to be the largest of the year.
The decision comes in the wake of concerns raised over Arm's growth and its reliance on its challenging Chinese division since filing to go public two weeks ago. In an updated filing on Tuesday, Arm estimated its shares would be priced between $47 and $51, implying a company valuation of between $48bn and $52bn. This figure falls short of the $64bn valuation at which SoftBank valued Arm in a recent deal with its separate Vision Fund, and also below the $70bn bankers had anticipated.
This listing is being keenly observed as investors hope it could rejuvenate a dormant IPO market and restore faith in the tech sector, which has experienced falling valuations over the past year. As part of the flotation, several tech giants including Apple (NASDAQ:AAPL), Google (NASDAQ:GOOGL), Samsung (KS:005930), and Nvidia (NASDAQ:NVDA) will purchase up to $735m worth of shares. Other participants include Taiwanese chip titans Mediatek and TSMC, chip manufacturers Intel (NASDAQ:INTC) and AMD, and semiconductor design firms Synopsys (NASDAQ:SNPS) and Cadence. Notably absent from this group are Amazon (NASDAQ:AMZN) and US chipmaker Qualcomm (NASDAQ:QCOM), who were previously rumored to be potential investors.
The downsized offering represents a setback for Masayoshi Son, SoftBank's CEO and Arm's chairman. Son was banking on a successful listing to offset a series of underwhelming tech investments. Despite this, SoftBank will remain Arm's dominant shareholder immediately after the flotation with about 90.6% of shares, and will be barred from selling further shares until 180 days post-listing.
The decision to list in New York rather than London was made despite efforts from Rishi Sunak to persuade the company to return to the London Stock Exchange. This is partly because tech companies are perceived as securing higher valuations in the US.
Despite Arm's semiconductor designs being used in 99% of the world's smartphones and impacting 70% of the global population through its technology, investors have expressed doubts about its growth potential. With China accounting for 24% of Arm's sales last year and operating independently, the company has admitted this exposes it to "significant risks." Ahead of setting a final price and going public next week, Arm is embarking on an investor roadshow over the coming days.
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