WeWork has said it is laying off around 2,400 employees globally, as the office-sharing company seeks to cut costs quickly and stabilise its business after it transformed from a Wall Street darling into a pariah in a few short weeks.
The long-anticipated layoffs are the biggest move yet by Japanese technology investment company SoftBank Group Corp, which is providing a $9.5bn lifeline.
SoftBank will soon own about 80 percent of WeWork shares and is trying to make sure the struggling firm refocuses on its core business – and on profitability.
Under co-founder and ex-CEO Adam Neumann, WeWork had become bloated, after diversifying into all kinds of areas. Ventures have included a WeGrow school and WeLive apartment buildings.
The company was also expanding at a breakneck speed without any clear route towards making money.
“As part of our renewed focus on the core WeWork business, and as we have previously shared with employees, the company is making necessary layoffs to create a more efficient organization,” a company spokeswoman said in a statement.
“This workforce reduction affects approximately 2,400 employees globally, who will receive severance, continued benefits, and other forms of assistance to aid in their career transition,” the New York-based company added.
The company itself had 12,500 employees on June 30, and there are additional subcontractors who work for affiliate firms.
The layoffs began weeks ago in regions around the world and continued this week in the United States, WeWork said.
At least one employee was notified that he was being laid off by a manager who told him to expect an email on Thursday afternoon.
The whole second floor of WeWork’s headquarters in New York has been cordoned off for human resources procedures, the ex-employee said.
The layoffs come even as WeWork considers a change in CEO to replace Artie Minson and Sebastian Gunningham, who themselves have only been in place since September.
Ultimate control of the company now rests with SoftBank and WeWork’s new Executive Chairman Marcelo Claure. Claure had told employees in an email on Monday that job-cutting will start “in earnest” this week in the US, saying WeWork was “going to eliminate and scale back certain functions and responsibilities”.
The job cuts are the latest sign of how much WeWork’s prospects have deteriorated – from being valued at $47bn in January and planning in September an initial public offering, to a company that was facing a cash crunch and fighting for survival.
It shelved plans for the IPO on September 30 because investors were wary of its growing losses, risky business model and lax corporate governance. WeWork cofounder Adam Neumann had resigned as CEO the previous week.
The architecture department, which has helped curate WeWork’s distinctive shared office spaces known for their modern design, will reportedly be affected by layoffs.
In the aftermath of the announcement, WeWork’s junk bond due in 2025 fell 1.125 cents on the dollar, sending its yield back to near a record high above 16 percent.
Its spread over Treasury bonds – a measure of the additional premium investors demand for owning its risky debt rather than safer government securities – widened by 0.36 of a percentage point to 14.46 points. Before it launched the failed IPO effort, the bond’s spread was less than half that.
WeWork is still facing a litany of issues, the latest being an investigation by the New York State attorney general.
The company’s losses are continuing to mount, swelling to $1.25bn in the third quarter. Burning through cash quickly, WeWork has committed to a big expansion in a wide array of cities and has already signed expensive long-term leases to move into many buildings.
As part of the restructuring, it is closing or selling peripheral businesses that it set up – including the private WeGrow elementary school, which will shut its doors after the current school year.
Employees were told they will be called down to the second floor at 2pm Eastern Time to receive human resources information and sign papers. To pass the time, some WeWork staff in New York drank Fireball whiskey.
A WeWork employee, speaking on the condition of anonymity, said on Wednesday that some employees at its residential living business, WeLive, had been told Thursday would be their last day.
Some WeWork employees have banded together into the WeWorkers Coalition, which is calling for severance packages and compensation covering lost equity for laid-off employees.
“In the immediate term, we want those being laid off to be provided fair and reasonable separation terms commensurate with their contributions, including severance pay, continuation of company-paid health insurance and compensation for lost equity,” said Alan Friedman, a WeWork software engineer who helped start the WeWorkers Coalition two weeks ago.
Friedman described the long wait for the layoffs announcement, which has been widely discussed in the media for weeks, as “draining” for staff morale.