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It was supposed to be one of the largest IPOs of the year.
But the shared office group WeWork
was instead plunged into crisis after investors
failed to buy into its valuation of $47bn
or its promises of elevating the world's consciousness.
The IPO was called off, and the chief executive resigned.
But what exactly is WeWork?
Put simply, it rents out office space,
decorates it in a distinctive style,
and rents it out on all-inclusive deals
to businesses ranging from start-ups to Facebook and HSBC.
It's grown at a breakneck pace.
In recent years, it's become the largest private tenant
in Manhattan and central London.
The former chief executive, Adam Neumann,
previously told the FT it was about much
more than office space.
A lot of times, people ask me if we
compete against co-working spaces or against Regus
and the answer is no.
We're competing against office.
We're changing the way people work.
One of the ways that really differentiates us is community.
But WeWork's quick expansion came at a price.
As the company grew, bankrolled by its biggest
investor, SoftBank, its losses have ballooned.
Last year it reported a loss of $1.6bn on sales of $1.8bn.
They combined three things that when put together are very,
very dangerous or difficult. When you have losses...
like, very big losses...
when you have opacity... like, you're very,
very difficult to analyse, because you haven't provided
details...
and arrogance.
So when companies are difficult to analyse,
then the trust of the management team becomes more important.
And when investors, you know, looked hard at this team
to see if there was a team here that they could trust,
I think that's when things started
to unravel for this process.
Another problem for investors was the way WeWork is run.
This is the business structure they submitted
when they were hoping to list.
It's a structure known as a UPC, which offers tax
benefits to early investors.
It also creates different share classes.
The former chief executive, Neumann,
would have had 20 times as many votes per share
as ordinary shareholders.
Investors were worried about his levels of control and other
deals, like his decision to charge the company almost $6m
to use the word "we."
After an outcry, that decision was reversed.
Now Mr Neumann is out.
The new co-chief executives have signalled a slimming down
of the company, and they are selling off its private jet,
which Neumann used to travel the globe
and which the company bought just last year for $60m.
But some landlords still think WeWork has huge potential.
Mike Hussey of London-based Almacantar
owns one of WeWork's largest sites.
He says businesses are flocking to WeWork spaces.
What WeWork have done is said: "We
think modern companies want something completely different.
They want a fully serviced operation, the ability
to locate alongside like-minded people.
And we are prepared to wrap the whole thing together, provide
you with space that really works for your staff,
provide you with the flexibility to do what you want
to do in your space, and provide you with all the support
mechanisms that you need in order to occupy that space."
And that is where the market - and they've
stolen the march on the market - that
is where the market has really changed.
The new co-chief executives will now
have to make that case to investors
and WeWork's worried staff.
The company plans to drastically slow its expansion
to avoid running out of cash.
But it faces an uphill battle to show that WeWork really
is at the vanguard of a real estate revolution and not
just another bloated unicorn that
couldn't stand up to scrutiny.
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WeWork: profile of a company in crisis | FT

1 Folder Collection
林宜悉 published on March 23, 2020
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