WeWork parent says IPO still on despite setback

In the run-up to the IPO launch, WeWork owner The We Company faced concerns over its corporate governance standards, as well as the sustainability of its business model. PHOTO: REUTERS
In the run-up to the IPO launch, WeWork owner The We Company faced concerns over its corporate governance standards, as well as the sustainability of its business model. PHOTO: REUTERS

Office-sharing firm expects year-end listing after decision to delay market debut

NEW YORK • WeWork owner The We Company said on Monday that it expected to complete its initial public offering (IPO) by the year end, after walking away from preparations earlier in the day to proceed with its stock market debut this month.

The United States office-sharing start-up was getting ready to launch an investor road show for its IPO this week before making a last-minute decision on Monday to stand down, because of concerns that not enough stock market investors would participate, people familiar with the matter said.

The company has been under pressure to proceed with the stock market flotation to secure funding for its operations.

In the run-up to the IPO launch, We Company faced concerns over its corporate governance standards, as well as the sustainability of its business model, which relies on a mix of long-term liabilities and short-term revenue, and how such a model would weather an economic downturn.

Reuters reported last week that We Company might seek a valuation in its IPO of between US$10 billion (S$13.8 billion) and US$12 billion, a sharp discount to the US$47 billion valuation it achieved in January.

"The We Company is looking forward to our upcoming IPO, which we expect to be completed by the end of the year. We want to thank all of our employees, members and partners for their ongoing commitment," it said in a short statement.

If it had pressed on with the IPO at such a low valuation, it would have represented a major turning point in the growth over the last decade of the venture capital industry, which has led to the rise of start-ups such as Uber Technologies, Snap and Airbnb.

It would have meant that We Company would be valued at less than the US$12.8 billion in equity it has raised since it was founded in 2010, according to data provider Crunchbase. And it would have been a blow to its biggest backer, Japan's SoftBank Group, at a time when it is trying to amass US$108 billion from investors for its second Vision Fund.

 

SoftBank was discussing supporting the IPO by snapping up shares worth between US$750 million and US$1 billion, the sources said. However, We Company decided on Monday that even with SoftBank's support, the IPO would have raised a little over US$2 billion, short of its target of at least US$3 billion.

This target is tied to a US$6 billion credit line We Company secured from banks last month that calls for an IPO to take place by the year end and raise at least US$3 billion, one of the sources said.

Were the New York-based company to fail to meet this target by the year end, it would need to secure alternative funding.

The Wall Street Journal first reported on the potential IPO delay.

The sources who spoke to Reuters requested anonymity because the matter is confidential.

The last time SoftBank invested in We Company was in January at the US$47 billion valuation, injecting US$2 billion of cash. It had been pushing the firm to delay its IPO.

JPMorgan Chase & Co and Goldman Sachs Group had been tasked with leading We Company's IPO as underwriters.

GOVERNANCE CHANGES

We Company's decision to delay its IPO indicates it did not feel confident that the corporate governance changes it unveiled last Friday, slightly loosening chief executive and co-founder Adam Neumann's grip on the company, was enough to woo investors concerned about its lack of a path to profitability.

We Company had said it was making the changes "in response to market feedback".

It said Mr Neumann's superior voting shares will decrease to 10 votes per share from 20, though he will retain majority control of the company.

Mr Neumann will also give the company any profit he receives from real estate deals he has entered into with We Company. He will also limit his ability to sell shares in the second and third years after the IPO to no more than 10 per cent of his stock.

No member of his family will be on the company's board and any successor will be selected by the board, scrapping a plan for his wife and co-founder Rebekah Neumann to help pick the successor.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 18, 2019, with the headline 'WeWork parent says IPO still on despite setback'. Print Edition | Subscribe