WeWork’s IPO just might after all

Here’s what you need to know as the troubled office leasing group pushes ahead with IPO plans

Here’s what you need to know as the troubled office leasing group pushes ahead with IPO plans

A strong push-back from financial professionals and major investors on everything from the terms of its planned voting stock, valuation, and governance concerns threatened to scupper the second-biggest listing of the year entirely. Then came reports that may have chilled early stage investors: the biggest stakeholder in the office space group, VisionFund, controlled by Japan’s Softbank, was pushing WeWork management to shelve the listing as the almost unanimous criticism began to weigh on WeWork’s potential market valuation.

From a sum as high as $65bn reportedly projected by Goldman Sachs whilst pitching to be the bookrunner, Friday reports suggest the market capitalisation could now start as low as $10bn. And that’s after founder Adam Neumann offered concessions to get the deal across the line.

An outside chance remains that the debut could yet be postponed. Softbank’s VisionFund has invested in the group at far higher valuations currently being discussed. Also, the two banks handling the IPO, JPMorgan and Goldman have publicly signalled concerns about an IPO valuing We anywhere below $15bn

Still, WeWork’s prospects of coming to market look to have rebounded. Not least because Softbank has now signalled that it could double down on its investment by purchasing at least $750m of the stock at IPO. Shares in We Co., the group’s official name, are expected to be marketed to investors next week. They could then be listed on the Nasdaq stock exchange during the week beginning 23rd September, according to news reports.

Here are some key points

  • Voting shares: We Co. initially adopted a custom often deployed by techy companies by setting share terms that would enable founders, including Adam Neumann, to keep a tight grip on control. In an updated prospectus out on Friday, We now says that ‘high-vote’ stock will now only have 10 votes, instead of 20 previously. However, We is keeping proposals to offer three classes of stock that continue to leave the majority of votes with Neumann
  • Governance concerns: We has also proposed major changes to its board structure after Wall Street attacked unconventional plans to, for instance, include Neumann’s wife as a board member, apparently not for reasons connected to expertise in WeWork’s core business. We Co. now pledges that no member of Neumann’s family will have a board seat. With a weaker ability to fill the board with pliable directors, We’s board may be sufficiently independent to enforce a switch from the pursuit of growth in favour of profitability which founders have said is We Co’s ultimate aim
  • Valuation: There is no clear comment about valuation in the group’s latest filing. However We appears to be briefing widely that it now expects to seek a valuation of between $10bn-$12bn. That’s a humiliating climb down relative to earlier values. It also suggests a measure of desperation to get the IPO done. It’s worth remembering that what was meant to be one of the group’s final finance deals before launching on the stock market predicated as much as $10bn in additional funding, should We conclude its IPO
  •  About those finances….The group’s financial structure is unconventional, to put it mildly. Some of the most controversial points are as follows.

Neumann transactions - We Co. lent Neumann multimillion-dollar amounts intended for property acquisitions, followed by sale and leaseback deals in favour of Neumann. We now says Neumann will return any profits from such transactions to the company. $50bn is payable to entities controlled by Neumann in coming years.

Cash-burn: $2.2bn was toasted last year. The group has disclosed that it lost $2.9bn over three years and $690m in the first half of 2019.

Revenues: We Co. generated $1.8bn in 2018 compared to $886m a year before.


Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.