WeWork, the high profile co-working space operator now majority owned by Softbank after a bailout that saved it from collapse in the wake of an aborted IPO two years ago, is finally set to list as a public company this month. The company is expected to debut on the New York Stock Exchange on or around October 21st through a reverse merger with the Spac (special-purpose acquisition company) BowX that will value it at around $9 billion.
However, despite surviving the pandemic period thanks to slashing costs and the financial support of majority shareholder Softbank, WeWork has lost around $5 billion over the past 3 years. And it remains to be seen how markets will react to losses for this year, reported at $1.5 billion (£1.1 billion) for the current year during an investor presentation made last week.
The presentation also revealed Softbank has nominated former Kingfisher (owner of B&Q) chief executive Véronique Laury to the WeWork board as a non-executive director.
WeWork chief executive Sandeep Mathrani faces an uphill struggle to convince investors the company is now ready to put the pandemic and early years of profligate spending behind it. Mathrani was brought in to replace the co-working operator’s controversial co-founder and former CEO Adam Neumann. Investors were put off investing in the proposed 2019 IPO in large part due to concerns over Neumann’s leadership as well as a string of arrangements that had seen his personal financial affairs become deeply entangled with those of WeWork.
WeWork has shown signs of a recovery from a slump to just 47% occupancy across its 762 international co-working locations with occupancy rising to 61% over the three months to September. That can be expected to improve again over the prime autumn period, which is typically a strong period for attracting new occupants.
WeWork has over 60 sites in London, which the company told investors accounted for over 35% of all new leasing activity across the UK capital over the second quarter. WeWork is London’s single biggest tenant of prime office space which it then sub-lets to occupants who range from freelancers to start-ups and SMEs.
The company’s finances have been dealt a blow this year by it incurring $793 million in costs associated with getting out of contracts for less profitable sites and a financial settlement with Neumann, who was pushed towards the exit door after the shambolic IPO failure two years ago.
Having once valued WeWork at $47 billion during a pre-IPO investment round it participated in, Softbank will suffer heavy paper losses at the $9 billion valuation the company looks like it will eventually list at. Having been left with a 10% stake in the agreement that led to his departure, Neumann is in line for another windfall of almost $1 billion.
Mathrani has faced the daunting task of clearing up after his predecessor and has pulled WeWork out from over 150 locations since the start of the Covid-19 pandemic. He told investors last week the strategic downsizing is now mainly complete though one current WeWork landlord has reportedly said he expects the company to pull out of further locations as he feels it still has lease commitments that will prove commercially unviable.
The reverse merger deal agreed with the Spac BowX, will provide WeWork, which has total debts of $4.58 billion, with $1.3 billion in cash. The company expects underlying earnings to bounce back to $243 million next year before surging to around $2 billion in 2024. It expects sales of $2.66 billion this year to grow almost 300% to $6.79 billion in 2024.
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