WeWork's IPO plan in doubt as CEO exits under pressure

In this file picture from January last year, Mr Adam Neumann is seen with his sister Adi at the 2018 Creator Awards in New York. Mr Neumann, who co-founded WeWork, stepped down as chief executive officer on Tuesday under pressure from the board. He t
In this file picture from January last year, Mr Adam Neumann is seen with his sister Adi at the 2018 Creator Awards in New York. Mr Neumann, who co-founded WeWork, stepped down as chief executive officer on Tuesday under pressure from the board. He took on a new role as non-executive chairman.PHOTO: NYTIMES

NEW YORK • WeWork's plan to go public, in what was to have been one of the largest stock offerings of the year, has hit a wall. Now the company will see whether sacrificing its divisive leader can save a crucial fundraising effort.

Mr Adam Neumann, who co-founded WeWork and turned it into one of the world's most valuable start-ups, stepped down as chief executive officer on Tuesday under pressure from the board. He took on a new role as non-executive chairman and gave up control over management decisions. The move is designed to salvage an initial public offering (IPO).

A litany of apparent conflicts of interest and Mr Neumann's propensity to burn through capital were the main concerns.

"In recent weeks, the scrutiny directed towards me has become a significant distraction," Mr Neumann, 40, said in a statement on Tuesday. "I have decided that it is in the best interest of the company to step down as chief executive."

Senior WeWork executives Sebastian Gunningham and Artie Minson were appointed as co-CEOs.

WeWork's parent company, We Co, still intends to go public at some point, but people briefed on the deliberations said it is unlikely to take place as soon as next month, as was planned.

  • US$3b

  • The new loan amount WeWork is eyeing from banks as the timing of the company's initial public offering is currently up in the air.

The new co-CEOs said in a statement that they will be "evaluating the optimal timing for an IPO".

WeWork has been under a tight deadline to go public. It needed to do so by the end of the year in order to secure a US$6 billion (S$8.3 billion) debt financing that is contingent on a successful stock offering.

The company, which is deeply unprofitable, will need to find an alternative source of capital next year if the 2019 IPO falls through.

The co-CEOs "anticipate difficult decisions ahead" to protect the company's long-term interests and health, they wrote in an e-mail to staff reviewed by Bloomberg.

With the timing of an IPO now up in the air, the company is in talks with banks about a new US$3 billion loan, which would also be contingent on raising a substantial amount of new equity, people with knowledge of the matter said.

A likely source of that equity infusion is SoftBank Group, the company's largest shareholder, according to the Wall Street Journal, which previously reported the new loan discussions.

In a bid to reduce costs and slow the cash burn that has spooked investors, We Co is also considering job cuts and shedding or spinning off non-core businesses, such as WeGrow, an experimental New York City private school, according to people with knowledge of the matter. Eliminated positions would number in the thousands, one person said.

After Mr Neumann's decision to step down, WeWork's high-yield bonds initially fell to as low as 92.75 US cents on the dollar, their lowest level in more than four months.

Triton Research CEO Rett Wallace said WeWork's problems run much deeper than Mr Neumann.

"WeWork suffered from three things that, when put together, are not good news for a company. The first was significant losses. The second was opacity - they made it very difficult to analyse the company. And then third was arrogance," Mr Wallace said. "The only thing that changed today is possibly the third bucket."

Although 2019 will be the busiest year of the decade for IPOs, the party has been spoiled by several underperformers. Two of the largest offerings, Uber Technologies and Lyft, are trading below their initial prices.

Over the last nine years, WeWork raised more than US$12 billion and set up co-working spaces around the world, where people rent desks and conference rooms.

Mr Neumann and co-founder Miguel McKelvey have long promoted a higher mission for the company than just being a commercial real estate landlord. They banned meat from company functions and have opened dorm-style apartment buildings.

"There will be changes ahead, and our leadership team will communicate transparently about them, just as we did today," Mr McKelvey wrote in a message to the staff late on Tuesday. "What I want you to know, most of all, is that even as some things change, the core of who we are never will - our culture of authenticity, inspiration, learning and growth remains stronger than ever."

Mr Neumann's We-powered rocket ship hit turbulence early this year. SoftBank called off a plan to buy a controlling stake in the business for US$16 billion. The Japanese conglomerate put in US$2 billion instead, and Mr Neumann embarked on a flight to the stock market for additional capital.

WeWork published its IPO prospectus last month, and investors were aghast. The company had never turned a profit and failed to make a convincing case it could do so.

As part of Mr Neumann's exit as CEO, he has agreed to further reduce his sway in board decisions, and his wife Rebekah will relinquish her role in the business, said the people briefed on the plans.

The new question for WeWork is whether it can reach new heights without the man whose singular vision drove the business until today.

"That's the Catch-22 here. There needed to be some change, but it is a material risk," said managing partner Gene Munster at Loup Ventures. "The company's performance is embodied in the leader."

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A version of this article appeared in the print edition of The Straits Times on September 26, 2019, with the headline 'WeWork's IPO plan in doubt as CEO exits under pressure'. Print Edition | Subscribe