By Echo Wang and Anirban Sen
NEW YORK (Reuters) - Chip designer Arm signed up 28 banks for its blockbuster initial public offering without giving them a fee arrangement, a reflection of owner SoftBank (TYO:9984) Group's leverage over underwriters clamoring for a role, according to people familiar with the matter.
While it is common for the fees that banks receive in an IPO to be finalized at its completion, it is unusual for a company not to communicate to underwriters an approximate percentage of the offering they will receive as their cut, the sources said.
SoftBank plans to hold off giving details on the fee structure until one to four days prior the pricing of Arm's IPO, expected in September, the sources added. By then, the IPO's investor road show will have launched and SoftBank will have a better sense of how good a job the banks are doing, before laying out their fee arrangement, according to the sources.
Goldman Sachs, JPMorgan Chase (NYSE:JPM), Barclays (LON:BARC) and Mizuho Financial Group, which are lead underwriters, as well as the other banks comprising the IPO syndicate, are going along with this because they are keen for a role on the biggest U.S. stock market listing since electric car maker Rivian Automotive went public in 2021, raising $13.7 billion, the sources said.
The banks' expectation on Arm is that they will be paid 1.5% to 2.5% of the $6 billion to $7 billion offering as fees, plus a smaller amount of incentive fees, in line with prevailing rates in the market, the sources said. They also expect that roughly 60% of the fees will go to the four lead underwriters.
The sources requested anonymity in order to discuss commercially confidential matters. Arm, SoftBank, Goldman, Barclays and Mizuho declined to comment. JP Morgan did not immediately respond to a request for comment.
This kind of fee arrangement is not unprecedented for SoftBank, which has previously held back on fee details in high-profile capital market transactions that attract interest from underwriters. It also left the fee arrangement vague on its $21 billion stock sales at U.S. wireless carrier T-Mobile in 2020, until the very end, according to the sources.
To be sure, the banks on Arm's IPO view their assignment as part of a wider investment banking relationship that pays on many fronts. Many of them also arranged an $8.5 billion margin loan for SoftBank secured against a 75% stake in Arm. The money that the banks stand to make on that loan could not immediately be learned.
More broadly, SoftBank is a prolific user of investment banking services, as it buys and sells companies and invests in startups.
Overall, banks are hungry for IPO work after Russia's invasion of Ukraine and the spike in interest rates kept the market for new listings subdued for most of the last two years.
Banks have generated about $3.4 billion in IPO fees globally year-to-date, down 21.3% from the same period last year, according to data provider Dealogic.