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The author is co-chair of Alvarium Investments and Professor Emeritus of Commerce at Gresham College
The UK Competition and Markets Authority (CMA) recently recommended an in-depth investigation into Nvidia’s planned takeover of British chip designer Arm on the grounds that it would “stifle innovation in a number of markets”. I officials expressed similar concern.
Arm is the only UK technology company with an undeniable dominant position worldwide. As such, it is imperative that it be a neutral enterprise whose designs can be provided to all customers without being owned by any of them. And the best way to maintain this uniqueness is through an initial public offering in London.
The current bid by Nvidia The acquisition of SoftBank is being investigated by four major regulators in the US, UK, Europe and China. One of these – quite possibly in the UK – will decide that the consequences of security and competition could be the result of Nvidia’s bid being rejected. The CMA has already decided that the behavioral remedies offered by Nvidia would not address its main concerns. This is not the time for remedial action, but to reaffirm the independence of Arm.
The argument for maintaining the independence and neutrality of Arm, albeit an IPO, is separate from the question of whether there is a competition issue. Arm is an important knot in the British technology ecosystem. In the UK Integrated security overview published in March, the Prime Minister, Boris Johnson, emphasized technology as ‘essential to our prosperity and competitiveness in the digital age’.
He was ready to do it. Following Brexit, the independent growth of the UK technology base is one of the most exciting prospects for economic expansion and employment. Arm is the flag bearer for the UK technology industry and essential for every global chipmaker.
It is therefore essential that it should not be the first victim of the Security Review. An IPO in London would indicate the government’s willingness to support UK competitiveness in technology. Furthermore, it would highlight the possible security implications if Arm were not an independent business.
It was a mistake for a previous government to allow the acquisition of Arm, even though SoftBank was smart copper. Through a listing on the London Stock Exchange, it would offer a credible alternative to a suspected transaction with Nvidia.
It is essential that another viable option be prepared to establish the basis for a UK business through a predominantly UK board structure. This would ensure the future growth and dominance of Arm in its independent form. It would also provide a political alternative that is in line with the government’s desire to promote the UK as a global digital and technological hub.
Poor, with a current market capitalization of almost £ 24 billion, would be an attractive investment case for global investors, precisely because of the large volume of any offer. The LSE remains the global financial market and provides the necessary liquidity for such a stock exchange.
Large sovereign wealth funds and global pension funds will also be attracted by an independent key provider of chip design. They would not be alone. For example, Cristiano Amon, President and CEO of Qualcomm, recently indicated that he would be willing to work with other industry investors to buy a stake in Arm if the latter becomes a listed company. There is no doubt that other major artists in the industry would follow suit.
The government was recently prepared to review a Chinese investment in Newport Wafer Fab, a composite semi-power source supplier in Wales. However, maintaining Arm’s independence and its global dominance in design is of greater strategic importance. I have never been in favor of ‘gold stocks’, but if ever there was a reason for the judicious use of such a stock by the government, it is this.
The use of weapon cores in almost every digital device worldwide is a remarkable achievement. This Cambridge business should not fall into the hands of a single competitor, whether Nvidia or anyone else.
It would be a tragedy if the Nvidia agreement was rejected on competition grounds, only to be followed up by a Nasdaq-listed company for special purposes to take a step for Arm. It is a British company and its key role in the digital economy must be recognized.
An IPO in London would celebrate a remarkable national achievement. A daring government will recognize the importance of Arm for the Integrated Security Review and encourage this alternative.