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It seems that We Company and its main business WeWork are having troubles with their main financier Softbank who is pushing for the company to put its troubled IPO on hold.
The owner of office space company WeWork burned through $900m in the first six months of this year and documents filed with regulators reveal The We Company, valued at about $47bn, invested heavily in expansion. Because of these losses, SoftBank, the biggest external shareholder in WeWork, advised this property group to delay its hotly anticipated initial public offering.
Just for reminder, WeWork’s parent company, the We Company, wants to raise between $3 and $4 billion in its flotation. However, now they are overlooking disapproval from Wall Street investors and analysts regarding their management, payments made to co-founder and chief executive Adam Neumann and their use of a complicated corporate structure.
Together with its Saudi-backed Vision Fund, Softbank has pumped more than $10 billion into the office space provider. However, SoftBank’s eagerness for a listing has decreased since bankers have downgraded the valuation they believe the We Company can achieve once when it’s listed.
In the meantime, advisors for the We Company are constantly experimenting with investor appetite at a valuation of between $15 billion and $20 billion – far beneath the $47 billion valuation given to WeWork when SoftBank invested $2 billion in the business this year. SoftBank, on the other hand, is trying to raise $108 billion for a second Vision Fund to invest in technology start-ups.
If the We Company lists with this terrifying cut of the price, this Japanese group could face challenges raising that amount. Next year WeWork should get $1.5 billion from SoftBank as part of a consensus they’ve signed at the beginning of this year. The company listed $2.5 billion of cash and its equivalents on its balance sheet as of June 30.
If the We Company decides to delay listing, they could lose access to a loan worth $6 billion from a group of banks, including JPMorgan Chase and Goldman Sachs. The absence of more than $9 billion in new capital could present a huge difference in the We Company’s corporate strategy, including its aggressive expansion that has seen it open 528 locations in more than 110 cities.
The company lost more than $4 billion in the last three years, managing to loose capital even as its revenues have doubled each year over that period. In their IPO filing, WeWork said that they are ready to slow down their growth if that means they would become profitable. However, investors are still being pretty skeptic regarding the business model, that still hasn’t been tested by some important economic downturn as, e.g. recession.
Some investors are also worried about their habit of leasing office space for a long period (15 years average) and at the same time renting it to tenants on a shorter basis.
WeWork is also trying to address some of the issues investors and analysts have raised ahead of its IPO and Neumann even returned a $5.9 million payment he received from the company for the rights to use the trademarked word “we”. The We Company also last week revealed that they’re adding a female member to their all-male board of directors once they complete their listing.