WeWork Parent Weighs Further Valuation Cut
Office-sharing company eyes valuation below $20 billion amid investor skepticism
WeWork’s parent is eyeing a valuation for its initial public offering that could fall below $20 billion as some existing investors push the workspace company to shelve the planned offering, people familiar with the matter said.
Despite plans to begin a roadshow to market the shares to new investors as early as Monday, We Co. and its underwriters are planning to hold meetings this week among themselves and with investors to figure out what changes may be needed to help garner enough demand for an IPO, the people said.
A valuation below $20 billion would be an even steeper drop from the $47 billion mark where We last raised private capital this year in the face of skepticism among potential public investors over the company’s governance, its business model and ability to turn a profit while continuing to grow. It would be particularly painful for investors who have given or committed over $10 billion to the company since it was founded in 2010.
Potential investors have been unnerved by co-founder and Chief Executive Adam Neumann ’s sales of hundreds of millions of dollars of his stock and loans of more than $740 million tied to his shares in the company, according to Wall Street Journal reports and regulatory filings. Mr. Neumann also controls a majority of the voting rights of the company and recently doubled the potency of his supervoting shares.
Some investors have indicated interest in the IPO and it is possible the company will pull it off at a valuation of $20 billion or higher.
Should We yank or postpone the IPO, it stands to miss out on nearly $10 billion needed to fund its ambitious but money-losing global-growth plans. The company was planning to raise $3 billion to $4 billion in the IPO and up to $6 billion in debt that is contingent on the IPO raising at least $3 billion.
If the IPO doesn’t happen, the company will either need to find more cash or scale back its plans for further growth, according to people close to the company. One problem is that We has long been betting its main appeal to investors is its rapid growth, but that growth is fueled by ever-growing helpings of cash.
We primarily rents space through long-term leases, renovates it and then divides the offices and subleases them over the short term.
The company is continuing to talk to its biggest investor, SoftBank Group Corp., about whether the Japanese technology giant would put in additional capital through the IPO by buying a significant portion of the shares on offer or invest a chunk of money that would allow We to delay its IPO until 2020.
There is no guarantee SoftBank will ultimately choose to put more money into We. Some of the conglomerate’s key investors have previously balked at doing so, people familiar with the matter have said. But SoftBank CEO Masayoshi Son has said he expects to keep backing the company in the future.
Since We unveiled its IPO papers last month, potential investors have raised concerns with the company and its underwriters about its steep losses, which amounted to $1.61 billion in 2018, as well as hundreds of millions of dollars of real-estate deals and past personal loans involving the firm and Mr. Neumann.
A number of banks including JPMorgan Chase & Co. and Goldman Sachs Group Inc. have committed to arranging $6 billion of debt for We when it goes public, contingent on the offering raising $3 billion.