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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

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.

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