After botching its flotation, WeWork is facing a potentially fatal cash crunch. Digging itself out of this hole won’t come cheap. Matthew Partridge reports.
Japanese conglomerate SoftBank Group is preparing a takeover bid for WeWork, says The Wall Street Journal. The office management company, now the “poster child for start-up excess”, is “bleeding cash and [being] shunned by mainstream investors”. In exchange for injecting enough money into WeWork to relieve its “looming cash crunch”, SoftBank would take control of it. The proposed deal would further sideline WeWork’s controversial founder, Adam Neumann, who recently resigned as CEO but retains “substantial” voting power. SoftBank, which has already invested over $10bn in WeWork, reckons it “needs at least $3bn to get through the next year”.
SoftBank may want to take over WeWork, but WeWork may have other ideas, says Bloomberg. In order to “avoid having their stakes severely diluted”, Neumann and other major stakeholders are hoping that “emergency borrowing” can enable them to “turn around the office-sharing venture”. WeWork’s banker, JP Morgan, is “discreetly sounding out investors and floating” possible terms for a $5bn financing package that could prevent the loss-making group from “running out of money as soon as next month”. The plans are “risky”, but could reward investors “handsomely” if the firm does indeed recover.
Is it too late?
WeWork’s major stakeholders shouldn’t get their hopes up, say Eric Platt and James Fontanella-Khan in the Financial Times. With WeWork’s bonds yielding more than 11%, it is clear that public markets would charge WeWork an “exorbitant” fee if the property group sought to raise new debt. Many banks previous eager to be involved, such as Goldman Sachs, “are stepping aside in a sign of the risk in lending to the property group”. But any deal needs to happen quickly, because WeWork faces bankruptcy if more money doesn’t come in before the end of November.
Even if WeWork manages to cling on, its business may be permanently damaged, says Dominic Rushe in The Guardian. After years of “breakneck growth”, new openings have “all but stopped in WeWork’s two largest markets, New York and London, as landlords worry about the company’s future”. Meanwhile, staff claim that the collapse of the planned initial public offering, and the 2,000 redundancies widely expected to be announced, has created a “toxic” atmosphere.
It’s not just WeWork’s core business that is suffering, says The New York Times. For example, while it promised that its subsidiary WeLive, which runs managed apartments, “would become integral to the company’s future”, it only operates in two locations and is being investigated for illegally offering short-term hotel rooms. The education subsidiary WeGrow has also said that it will close its only for-profit school next year. Both offshoots have “become something of a metaphor for the entire company… big promises, but lacklustre results”.