By Clark Savage, Jr.
The WeWork rescue operation appears to be focused on SoftBank Group Corp. right now, as it puts pencil to appear to figure out a financing plan.
Initial reports say that plan might ultimately value the office-sharing company at less than $8 billion – not good news, since the company was valued at about $47 million only nine months ago.
“WeWork, reeling since it scrapped its initial public offering, has been considering dueling plans from SoftBank and JPMorgan Chase & Co. to shore up its finances before it runs out of cash as early as next month. The company’s board could make a decision as soon as this weekend, according to some of the people familiar with the situation,” reported Crain’s New York Business. “JPMorgan has been pitching investors on a $5 billion junk-debt package for WeWork. The unsecured and secured notes portion of the bank’s plan are being offered on a “best-efforts” basis, according to people familiar with the matter, meaning banks haven’t committed to funding the deal irrespective of investor demand.”
CEO Adam Neumann has departed, and the company “has scrapped its IPO along with a $6 billion debt financing that was tied to the offering. That means WeWork, which lost $900 million in the first six months of 2019, is poised to run out of money by mid-November,” CNBC reported this week.
“SoftBank, WeWork’s biggest outside shareholder, and J.P. Morgan Chase, its third-largest backer and primary lender, have every incentive to keep the company alive and are aggressively trying to pull together financing packages with the aid of outside investors and lenders,” CNBC added. “Without a lifeline in the billions of dollars, WeWork will face an ugly fate, with bankruptcy firmly on the table. In turn, the entire commercial real estate market could be upended.”
The reverberations will be felt far and wide. WeWork has undergone “a dramatic fall from grace in the last few weeks,” fastcompany.com pointed out. “Just two months ago the office rental startup was expecting to offer shares to the public at a total business valuation of $47 billion. This soon halved, and then investors rapidly pulled their support for an initial public offering (IPO) above $12 billion. The IPO was withdrawn, with catastrophic consequences for the business and its charismatic founder, Adam Neumann.
“The fallout for tech IPO markets and investment in startups more generally may also be severe. WeWork follows a number of so-called unicorn valuations of more than $1 billion that have gone public and subsequently nosedived in value. The company’s uncertain future reflects how investors have wised up to the hype around Silicon Valley startups.”