IPO within Arm’s reach

This is an audio transcript of the FT News Briefing podcast episode: ‘IPO within Arm’s reach’

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Marc Filippino
Good morning from the Financial Times. Today is Wednesday, September 13th and this is your FT News Briefing.

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BP’s chief executive is out. And Germany’s ailing economy is having ripple effect. Plus, the biggest US initial public offering in nearly two years is expected to go live tomorrow. I’m Marc Filippino and here’s the news you need to start your day.

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BP chief executive Bernard Looney has resigned. The company released a statement yesterday that confirmed FT reporting. The statement said that Looney left because he wasn’t fully transparent about past personal relationships with colleagues. BP also said the investigation into these relationships is ongoing. Looney was CEO for less than four years, but he had been with the company for more than 30. He was appointed as chief executive in 2020 to help the oil producer navigate toward greener energy. Looney did not respond to the FT’s requests for comment.

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Germany has Europe’s largest economy, but it’s now projected to shrink this year. In fact, of all the world’s leading economies, Germany is expected to perform the worst in 2023. That’s according to forecasts from the OECD and IMF. Here to explain why is Laura Pitel. She’s the FT’s Berlin correspondent. Hi, Laura. 

Laura Pitel
Hi, Marc. 

Marc Filippino
So, Laura, what are the main problems that have hit German growth prospects this year? 

Laura Pitel
I think Germany is facing a kind of confluence of crises. You know, first there was Covid and the supply disruptions that that caused for everybody. Then there was the Ukraine war, which has had a particularly big impact on Germany because it used to import more than half of its gas from Moscow and has had to have a huge scramble to replace that. And then now they are really suffering from sluggish global growth, especially in China, which is really tough for an export nation like Germany. I guess the final factor is there’s quite a lot of domestic problems. And I think a lot of the doom and gloom in Germany right now — and there is a lot of doom and gloom here — people are kind of rolling in angst is about kind of domestic problems, and how those are contributing to those kind of global factors. 

Marc Filippino
This sounds like it’s kind of the perfect storm happening. So what is the government trying to do to rekindle German industry? 

Laura Pitel
Well, Chancellor Olaf Scholz has been promising a bunch of things. He’s kind of under pressure. His coalition, made up of three different parties, is not very popular. He’s kind of promising the usual suspects, which is cutting bureaucracy, improving digitalisation, speeding up investments. But there’s quite a lot of scepticism about whether or not they’re actually gonna do that. I mean, leaders in Germany have been promising this for years. 

Marc Filippino
So a little earlier, Laura, you described the mood in Germany as gloomy. What does this actually look like on the ground? 

Laura Pitel
Lots of aspects of German life are affected on a daily basis by the problems that we’re talking about. I mean, one of the big problems facing the country is a skills shortage. There’s different estimates, but one of them, by respected think-tank, the German Economic Institute found that there are about 600,000 open positions in Germany right now, which can’t be filled with qualified people. And you feel it. My daughter’s kindergarten recently sent out a very panicked email saying that their cleaning company had cancelled the contract because they didn’t have enough cleaning workers. And so you feel this stuff. And the government is trying to take action, and they have announced immigration reforms. They’re trying to attract more people to this country. But the problems are all interrelated because the bureaucracy is very burdensome for people moving here. So that makes it hard for companies to bring new workers here. The challenges are quite big. 

Marc Filippino
Laura Pitel is the FT’s Berlin correspondent. Thanks, Laura. 

Laura Pitel
Thanks, Marc. 

Marc Filippino
Now, because Germany is Europe’s largest economy, when it’s hurting, chances are it’s gonna have an impact on its neighbours, too. In fact, one country is already making moves to counteract a downturn: Poland. The National Bank of Poland slashed interest rates last week, even though inflation is still above 10 per cent. 

Mary McDougall
And in response to that, we had a big fall in the currency, the zloty, which is now down over 3.5 per cent against the euro since the decision on Wednesday last week. 

Marc Filippino
The FT’s financial exchange correspondent, Mary McDougall, has been covering the fallout. 

Mary McDougall
Poland’s very closely linked to the German economy. The Poland central bank governor, Adam Glapiński, said that the decision was based on a radically changed economic outlook and said that the prospects of a recession in Germany was particularly worrisome for Polish exports. 

Marc Filippino
But there are risks to Poland’s strategy here. 

Mary McDougall
You can cut rates and hope that it’s gonna stimulate growth, but by cutting rates, that can stoke inflation. So you can end up shooting yourself in the foot if you’ve got an inflation problem as well as a growth problem. 

Marc Filippino
And as Mary points out, Germany might not be the only thing driving the surprise interest rate cut. Poland holds an election next month. 

Mary McDougall
So lots of people think that the central bank was unduly influenced by the goals of the ruling party who want to prioritise stimulating growth ahead of the election and are happy to tolerate inflation, which is still in double digits. 

Marc Filippino
Still, Poland might actually end up thanking its central bank. 

Mary McDougall
Poland could end up looking really quite smart here because, you know, in three, six months time, if Germany continues to deteriorate, then that interest rate decision in Poland last week could prove to be a really smart move. 

Marc Filippino
That was the FT’s foreign exchange correspondent, Mary McDougall.

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The British chip designer Arm plans to go public tomorrow. It’s the most hotly anticipated initial public offering the markets have seen in a while. Let’s lay out the basics. Arm is owned by the Japanese group SoftBank, and it left the public market in 2016. For its second go around, it’s planning to list at a valuation of about $50bn. But there is so much more to this IPO. And to discuss it, I have the FT’s global tech correspondent, Tim Bradshaw, with me. Hey, Tim. 

Tim Bradshaw
Hey, Marc. 

Marc Filippino
So talk to me about what this IPO means for Arm. I mean, what is the company trying to accomplish with this listing?

Tim Bradshaw
If anything it means more for SoftBank than it means for Arm. SoftBank bought Arm for $32bn back in 2016 and it’s now hoping to list it for some billions of dollars more than it was worth back then. But more importantly the fact that it will be a public company means that SoftBank will get about $5bn in proceeds from selling down 10 per cent of its stake. But it will also then be able to borrow against the company more easily and raise a war chest that it hopes will allow it to go off and make more deals. So for Arm itself, not a whole lot changes. Their biggest owner is still SoftBank. They’ll have 90 per cent of the company, but they are suddenly much more visible. And having been shielded from the vagaries of Wall Street, judging them on their quarterly numbers for several years, they’ve now got to pitch a growth story at a time when the smartphone market, which is their biggest chip customer, is actually kind of flattened down. So for Arm it’s really been a sort of galvanising moment. 

Marc Filippino
Yeah. I mean, I’m gonna admit this is not a particularly cool thing to say but I am actually very excited for their first quarterly report. 

Tim Bradshaw
No, I mean, so am I. I mean they are such a bellwether for the industry. There are few companies with a spread of customers in the mobile segment like Arm. In their IPO prospectus they talk about having a 99 per cent share of the smartphone chip market for the main processor that powers the iPhone and every Android device. I’m not sure that there is another 1 per cent, to be perfectly honest. (Laughter) I think they might as well call it a whole deal and go 100 per cent. So they are a perfect window into how the world’s biggest consumer electronics category is performing. 

Marc Filippino
And because they are such a window into that area, there’s a lot of hopes riding on this listing to crack open the, let’s call it sleepy, IPO market of the past few years. I mean . . .  

Tim Bradshaw
Sleepy? I think it’s been comatose. (Laughter) 

Marc Filippino
I mean, that’s a lot of pressure, Tim. 

Tim Bradshaw
Sure, it is. And there are a lot of people watching this. Now, it’s not a perfect candidate to reopen the IPO window because it’s not a start-up. It’s quite profitable. It’s 30-odd years old and quite mature. So that’s quite different to some of those other kind of racier tech stocks that venture capitalists are hoping that they will be able to float after Arm goes out. The next big one, which has already filed is Instacart, the online grocery provider. That is being listed at a prospective valuation of about a quarter of its last private valuation. And I think we’re gonna see a lot more tech IPOs that look more like that than look like Arm, which is, you know, a much more stable bet. 

Marc Filippino
Tim Bradshaw is the FT’s global tech correspondent. Thanks Tim. 

Tim Bradshaw
Thanks Marc. 

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Marc Filippino
After a more than three-year hiatus, millions of Americans will have to start making student loan payments again. Before the pandemic, the average borrower paid between $200 and $300 a month. If your payments are starting up again, we want to hear from you. How much will you have to pay each month? How are you feeling about it? And how is it going to impact your financial situation? We have a link in the show notes where you can record your response. We may play it in an upcoming episode of the Briefing.

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You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news. 

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