The WeWork IPO saga yesterday took what would appear to be its final turn for the immediate future with the announcement that all immediate flotation plans have been cancelled. When the IPO was originally paused less than two weeks ago as a result of poor investor feedback and muted interest, the rapidly growing co-working office space management company insisted that the move was temporary.
The official intention was to return to public markets either towards the end of this year or in early 2020. However, that is no longer the case and while WeWork says it does still see its long term future as part of public markets, it will first focus on its ‘core business’.
While certainly not a major surprise given the turn of events over the past few weeks, the decision still counts as a complete reversal of previous public statements. Last week’s decision by Adam Neumann, WeWork’s co-founder and CEO, to step down from his leadership position under pressure from the company’s board and investors looked like a move to address one of the biggest concerns raised by investors in an IPO. Namely, that the tangled business arrangements between himself and the company represented poor corporate governance and that his management approach was erratic.
Some of the worrying deals on the books were loans worth hundreds of millions made to Mr Neumann against his stock and options. Given that it has been announced that the voting rights attached to his shares have been reduced to three per share from 10 per share, the latter itself a pre-IPO halving from 20 votes per share, it can be presumed that, as suspected might prove to be the case, the debt was used by the board and investors as leverage to oust him relatively peacefully.
However, the conclusion has clearly been reached that for WeWork to achieve an IPO valuation that wouldn’t represent a massive ‘down round’ on earlier private valuations, with the last pricing the start-up at $47 billion, further structural changes need to be made to the company beyond simply a change at the top. The other big warning lights for investors were firstly the massive losses the company continues to rack up as a result of its aggressive expansion into new office buildings around the world. Secondly the fact that WeWork commits itself to long term leases and expensive refurbishments of office space, while sub-letting to tenants on flexible, short-term contracts. That leaves a lot of risk on the balance sheet in the event of occupancy rates dropping.
Mr Neumann’s role as CEO has been taken over by a new join-CEO pairing of Artie Minson and Sebastian Gunningham. Both are inside appointments with Minson formerly co-president and chief financial officer and Sebastian Gunningham, formerly vice chairman. Prior to WeWork Minson held senior management positions at Time Warner Cable and AOL before that. He has been described by WeWork insiders as “the adult in the room” bringing some temperance and balance to what has often been a somewhat chaotic corporate culture and decision making processes. Gunningham came to WeWork from Amazon, where he held the role of senior vice president of Amazon Marketplace for almost 10 years between 2007 and 2018. Before that stint he was also a senior vice president at Oracle and vice president of enterprise at Apple.
The two will now have a major task ahead of them cutting costs and realigning the WeWork business model in a way that will appeal more to investors at a valuation that doesn’t see earlier investors such as Softbank’s Vision Fund, which owns around 29% of the company, take major write-downs.Risk Warning:
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