A booster shot in the Arm? Already billed as the year’s biggest deal, the leading chip designer is toying with raising prices further on the eve of its launch.

The firm may seek to notch up its valuation higher by edging its stock price higher, sources told Reuters on Sunday, August 10.

The sources said the potential upping of the price is due to the deal being heavily oversubscribed, which means that demand for the new stock exceeds the number of shares available. On Friday, people familiar with the matter told the press the stock is six times oversubscribed.

A final decision on the pricing will be made before Wednesday. Arm did not respond to Reuters’ request for clarity on the issue.

The news comes just days ahead of the deal, expected to price on Wednesday evening, September 13, and hit the markets on Thursday, September 14.

The deal has had several updates already. Arm lodged an updated F1/A filing with the Securities and Exchange Commission (SEC) on September 5, which disclosed it will offer 95.5 million ordinary shares under the ticker “ARM.” At the time, it set its target price range between $47 and $51, which would have resulted in a $54.5 billion mark at the high end.

However, if Arm does price the IPO at the top or even above this range when its underwriters close their books on Wednesday, its total valuation would exceed the mid-$50 billions and edge toward the $60 billion mark.

Arm’s float has generated a lot of hype on Wall Street in recent weeks owing to the company’s lead role in designing the chips that enable artificial intelligence (A.I.), the burgeoning technology that has driven much of this year’s stock rally.

Eyes on the Prize

Analysts have speculated on the causes of the last-minute price tweak. Bloomberg’s Peter Elstrom says it could be a knock-on effect of Arm’s recent history, including a failed attempted sale to Nvidia and its owner, Softbank, purchasing its shares from its Vision Fund.

“It’s been a bit of a tumultuous road for Arm to head for this initial public offering… as they’ve come to market, we’ve seen these valuations bounce around a bit,” he said.

Bloomberg’s Vonnie Quin speculated the lack of blockbuster IPOs this year could have created pent-up demand for Arm.

Indeed, there are truckloads of cash parked on the sidelines. Around $3.5 trillion is in U.S. institutional money market accounts, and this static stash has grown throughout 2023 even as equities rose and broken through into bull territory.

Softbank’s hinted price hike may be a gentle nudge to get investors to open up their wallets a little wider and tap into these unspent cash reserves to push its valuation that much higher.

Yet not all are buying the buzz. Writing in the Financial Times, Craig Cohen encouraged investors not to be fooled by the tantalizing tit bit updates and focus on the fundamentals, which he says remain strong. The former BofA head, who has been closely covering the deal’s development, dismissed the leaking subscription numbers to the media as “amateurish” and said, “these whispers raise more questions than they answer.”

Arm’s owner, Japan-based venture capital fund Softbank, has been laying the groundwork for the deal for some time. In an effort to turbocharge its boost off the launchpad, it has recruited A-list industry stars as its strategic investors, including Apple, Nvidia, Intel, Samsung, and others.

It has also brought on a slew of underwriters for the deal. The lead book runners are Barclays, Goldman Sachs, J.P. Morgan, and Mizuho, while a long train of managers, including BofA Securities, Citigroup, Deutsche Bank, Jefferies, BNP PARIBAS, Credit Agricole, Santander, are bringing up the rear in support.

Whatever price point it settles at on its opening day, the deal is a historic launch that will be closely followed by investors and industry analysts alike.

Previously published at Wealth of Geeks. 

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