WeWork presses on with IPO, as valuation tumbles further

WeWork has raised more than $12bn since its founding nine years ago, but the company may now only be worth that amount.

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    Since the company filed publicly for the offering in August, its valuation has dropped amid investor scrutiny [File: Brendan McDermid/Reuters]
    Since the company filed publicly for the offering in August, its valuation has dropped amid investor scrutiny [File: Brendan McDermid/Reuters]

    WeWork is pressing ahead with plans for a public listing, announcing a series of governance changes aimed at shoring up a sagging valuation and assuaging critics who say it gave too much power to a polarizing co-founder.

    The company will trim the voting advantage that gives chief executive officer Adam Neumann sway over the board, and no member of his family will be allowed to sit on the board, it said in a regulatory filing Friday. WeWork will also announce a lead independent director by year's end.

    The moves aim to give potential investors a check on Neumann's control of the company and address some of the most unusual dealings between founder and firm. But it left in place a rare three-class stock structure and Neumann still maintains a voting majority, so it's unclear how much the changes will appease both investors and the banks in charge of managing WeWork's IPO.

    Questions remain about how investors will value the fast-growing, money-losing office leasing business that's backed by SoftBank. Both of the company's lead financial advisers - JPMorgan Chase & Co. and Goldman Sachs Group Inc. - have previously voiced concerns about proceeding with an IPO at a valuation around $15 billion, people briefed on the discussions have said.

    The potential valuation has fallen further to as low as $12 billion, a person with knowledge of the matter said Friday, asking not to be identified because the pricing is level is still being discussed and could change. Reuters reported Friday that WeWork may seek a valuation of just $10 billion to $12 billion, citing unidentified people familiar with the matter. A WeWork spokesman declined to comment on the report.

    The company plans to start its IPO roadshow as soon as Monday, said a person with knowledge of the matter. WeWork said Friday it picked Nasdaq as its listing venue.

    The new filing revealed that Neumann will return any profits he receives from the real estate transactions he has entered into with the company, and that any CEO who succeeds Neumann will be selected by board of directors.

    The board will have the ability to remove the CEO, and the updated prospectus has taken out a clause that previously said Neumann's wife Rebekah - who's listed as a founder and chief brand and impact officer of WeWork - will have a role choosing any new chief. Some criticized the changes as not going far enough.

    "This is an example of posturing," Jeffrey Cunningham, who teaches management at Arizona State University and has served on several corporate boards, said of WeWork's changes. The company appears to be facing pressure "to go public at a time that is inappropriate and with a governance record that is questionable."

    Still, the moves drove a WeWork bond to be the biggest price gainer in high-yield bond trading Friday. A Fitch Ratings analyst said the changes addressed many of the issues that the ratings company raised in downgrading WeWork's credit grade last month.

    "A key component of WeWork's model is the ability to restrain growth in the event of a downturn and these governance changes increase the likelihood that an independent board will have the power to enforce such a decision," Kevin McNeil, a director at Fitch, said in an emailed statement.

    WeWork, which leases and owns spaces in office buildings and then rents desks to businesses ranging from startups to large corporations, has raised more than $12 billion since its founding nine years ago and has never turned a profit.

    WeWork had been targeting a share sale of about $3.5 billion in September, people familiar with the matter said in July. A listing of that size would be second only to Uber Technologies Inc.'s $8.1 billion listing this year.

    After the company filed publicly for the offering in August, its valuation shrank amid investor scrutiny. SoftBank Group Corp., which with its affiliates is WeWork's biggest backer, invested in January at a valuation of $47 billion.

    WeWork has been driving ahead with its desire to IPO, in part to gain access to much needed capital. The company needs to raise at least $3 billion through an IPO to tap into an additional $6 billion credit line that bankers have been setting up in recent weeks. The facility requires the company to carry out its offering by Dec. 31, the people said.

    Share Classes

    The original IPO plan included three classes of common stock, with holders of Class A shares getting one vote per share, while Class B and Class C owners got 20 votes for each. This arrangement would have given Neumann the vast majority of the voting power.

    The company is changing its high-vote stock from 20 votes to 10 votes a share. But it's keeping the different classes, which it says "may result in a lower or more volatile market price" of its Class A common stock in part because certain indices like the S&P 500 exclude companies with such structures.

    The high-vote stock will automatically decrease to one vote per share in the event that Neumann becomes permanently incapacitated or dies, something that would previously only have occurred if Neumann's ownership fell to 5% or lower.

    The company already has taken some steps to improve its governance, such as adding a woman to its board and having Neumann return $5.9 million of partnership interests initially granted to him as compensation for trademarks used in a rebranding. Yet its IPO filing last month raised a variety of other concerns. Among them: The company paid Neumann rent and lent him money.

    Neumann will also limit his ability to sell stock in each of the second and third years following this offering to no more than 10% of his shareholdings. WeWork's Class A stock has been approved for listing on Nasdaq under symbol "WE".

    The New York-based company, which changed its name to the We Co. this year, disclosed in its filings that it had lost $2.9 billion in the past three years and $690 million in just the first six months of 2019. Its annual revenue, though, had more than doubled to $1.8 billion in 2018, compared with $886 million the previous year.

    - With assistance from Michelle F Davis, Anders Melin and Tom Giles.

    SOURCE: Bloomberg