Arm’s I.P.O. Delivers a Big Test for the Markets

Arm is ready to make its market debut

All eyes are on Arm Thursday as the chip designer prepares to begin trading on the Nasdaq in the biggest initial public offering of the year. The company priced its shares on Wendesday at $51 each, the top end of its range, valuing it at about $54.5 billion.

A lot is riding on Arm’s debut: Success may help revive a moribund market for I.P.O.s, as well as the fortunes of the company’s parent, the Japanese tech giant SoftBank, which is looking for a win after a string of disappointing investments.

Arm’s I.P.O. is big, but some had hoped for more. SoftBank had initially wished the company would be valued at as much as $70 billion. (Earlier this year, it had appraised Arm at $64 billion.) And it had pitched Arm as a major player in designing chips for artificial intelligence applications, a tech sector that investors have flocked to.

But valuations of privately held companies have fallen sharply over the past year, and investors were reportedly concerned about Arm’s so-so financial performance of late.

Still, the deal is probably a win for SoftBank. The $54.5 billion valuation is significantly higher than the $32 billion that it paid for Arm in 2016. And a richer appraisal could help SoftBank, which could then borrow more against its remaining stake in the company to raise more cash for investments.

SoftBank played it safe in taking Arm public, rather than taking the sort of grand risks it has long been known for: It sold about 10 percent of the company’s shares in the I.P.O., and its founder, Masa Son, reportedly favored pricing the deal at $51 a share, despite some underwriters suggesting going to $52 apiece.

What comes next? Wall Street has hoped that a successful Arm debut could restore investor confidence in I.P.O.s, jump-starting a market that has been largely flat over the past year. (That said, the offerings for younger, smaller companies, like Instacart and the marketing software provider Klaviyo, may be better indications of the health of the I.P.O. business.)

SoftBank also hopes that investors will regard the chip designer as a key part of the A.I. revolution, giving it the kind of runaway valuation lift Nvidia enjoys. But Arm is best known for making the low-power chips used in smartphones, a market that’s now stagnating, and it has only in recent years started making inroads into A.I.-focused data centers.

HERE’S WHAT’S HAPPENING

DACA is ruled illegal again. Efforts by the Biden administration to save an Obama-era program that shielded undocumented young adults from deportation weren’t enough to make the initiative lawful, a federal judge in Texas ruled Wednesday. The decision prolongs uncertainty about DACA; the case is likely to go to the Supreme Court.

China warns about iPhone-related security concerns. A spokeswoman for the country’s Foreign Ministry suggested that Beijing hadn’t prohibited the use of the devices by government workers, but cited unspecified concerns about Apple’s signature product. Meanwhile, Beijing criticized the European Union’s inquiry into state subsidies for the Chinese electric vehicle industry as a “naked protectionist act” and threatened retribution.

U.A.W. workers prepare to strike against Big Three carmakers. The leader of the United Auto Workers said that union members were ready to start walkouts on Friday as negotiations over a new labor contract stalled ahead of a deadline tonight. An extended work stoppage by the U.A.W. could have major economic fallout, especially in the Midwest.

Howard Schultz steps down from Starbucks’s board. He will become chairman emeritus, months after giving up the C.E.O. title for a third time. It’s the latest move by Schultz to transition out of the company, which he grew from its roots in Seattle into a global coffee giant, but whose last stint as C.E.O. included grappling with rising inflation and unionization drives.

The Fed’s higher-for-longer inflation problem

The markets this morning were nudging up the odds that the central bank will be forced to raise interest rates again this year after Wednesday’s Consumer Price Index report showed that inflation was running higher than expected.

Here are a few takeaways from the latest C.P.I. data:

The inflation outlook: higher for longer. Both the “headline” and “core” inflation readings, which strip out fuel and food costs, were above economists’ forecasts. Inflation is decelerating, but Wall Street analysts now see it remaining well above the Fed’s 2 percent target until late 2024.

Keep an eye on energy prices. Gasoline prices spiked, jumping 10.6 percent on a monthly basis. Crude oil prices are rising this morning, trading at around a 10-month high. High fuel prices have a multiplier effect on how companies set prices, which could explain why airfares have rebounded, rising nearly 5 percent last month compared with the July figure.

Economists still expect the Fed to hold tight on rates next week. But according to the CME FedWatch indicator, the futures market now gives a 39 percent chance of the central bank raising borrowing costs at its December meeting.

Lazard’s new chief sets out his plan

As Peter Orszag prepares to take the reins of Lazard on Oct. 1, the Democratic economist turned banker is laying out his priorities for the 175-year-old investment bank, including stepped-up recruiting and improving the company’s stock performance.

That’s all in service of ambitious goals, he told DealBook, including a doubling of revenue by 2030 and maintaining Lazard’s reputation as a top adviser to C.E.O.s and governments.

Lazard needs to grow in revenue, returns and relevance, Orszag wrote in an internal memo reviewed by DealBook. Doing that will mean winning more banking mandates, expanding the firm’s asset-management business (perhaps through acquisitions) and improving total shareholder returns to an average of 10 percent to 15 percent, in line with competitors.

It also means recruiting more bankers — a task that Orszag said improving perceptions about Lazard as a place to work could help with. “In some settings, fairly or unfairly, Lazard’s reputation lags,” he said.

The firm should benefit from improving conditions for investment banking. Orszag said that tailwinds for the business were improving as interest-rate rises by the Fed appear to be slowing and markets pick up. Also providing relief were signs that the Biden administration may back off slightly from aggressive antitrust enforcement, he said, after a setback in fighting Microsoft’s $70 billion takeover bid for Activision Blizzard.

But Orszag cautioned that all of this won’t translate into an immediate boost to business, because it will take time for new M.&A. talks to flower into completed deals.

Orszag predicted that Lazard would remain public for some time to come, despite a move by a rival bank, Rothschild, to go private and reports that his own firm had explored a similar move with an Abu Dhabi sovereign wealth fund.

Though the firm’s stock price has underperformed the wider market, he argued that Lazard’s pool of talent and business opportunities were a good foundation for better days ahead. “We’re a public company and have a lot of growth potential,” he said.

Who will succeed Bernard Arnault?

Bernard Arnault, the French billionaire behind LVMH, has ridden a decades-long global luxury boom to turn his holding group into one of the world’s most valuable companies.

But who will succeed Arnault, 74, is a question hanging over the group. He has given no indication that he is preparing to step back and even persuaded the board last year to raise the mandatory retirement age for C.E.O. and chairman to 80, from 75.

Still, a leading theory is that one or more of Arnault’s five children, each of whom holds an executive role at LVMH, are next in line.

The Times’s Liz Alderman and Vanessa Friedman spoke to Arnault and his children and report on what to expect next from the family.

“The best person inside the family or outside the family should be one day my successor,” Mr. Arnault continued. “But it’s not something that I hope is a duel for the near future.”

Still, legacy is clearly on Mr. Arnault’s mind. He grew up in Roubaix, once a booming textile center in northern France, and watched family industrial dynasties collapse as children or grandchildren took their eyes off the business or squandered inheritances.

“After one or two generations, it broke down because they had it too easy,” he said. It was a mistake he vowed not to make with his own children. “I didn’t want them to start going to big parties,” Mr. Arnault said. “I made them work.”

Assessing the China risk

Lawmakers on both sides of the House are calling for more limits on U.S. capital flows to China after President Biden signed an executive order last month banning investments in some high-tech sectors. But a House committee’s trip to Wall Street this week highlighted the challenges of disentangling financial links.

“More can be done,” Representative Maxine Waters of California, the top Democrat on the House Financial Services Committee, said on Wednesday at a hearing. She called on the Biden administration to review passive investing in Chinese companies through mutual funds and indexes, and wants more scrutiny of Chinese investments by private equity and venture capital firms.

Another area of concern: a potential invasion of Taiwan. Representative Mike Gallagher, Republican of Wisconsin, who heads a committee on competition with China, told DealBook that he “totally disagrees” with Biden’s assessment that China’s economic woes lessen the chances of an invasion. Taiwan is self-governed but China claims sovereignty over the territory and has threatened to take it by force.

His committee held a wargame-like exercise to demonstrate the potential effect on supply chains and the financial system, and Gallagher said an invasion would be a huge upheaval for the “U.S. economy and banking system.”

Congress is being urged to act. Jay Clayton, the former S.E.C. chair who spoke to the committee, said that there should be more scrutiny of and restrictions on outbound investments. Asking companies to make “shades of gray” distinctions about national security and human rights is unrealistic, he added, but Wall Street would respond quickly to government signals.

THE SPEED READ

Deals

Policy

• Senator Mitt Romney, Republican of Utah and a critic of Donald Trump and President Biden, said he won’t seek re-election next year. (NYT)

• The White House’s signature climate law is fueling new investment in technologies like solar power, but hasn’t bolstered the wind-power industry. (NYT)

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