WeWork has pulled plans for a share sale after ousting its founder and amid investor scepticism over its sky-high valuation. The decision leaves the office rental company facing a cash crunch as its new bosses prepare to make deep cuts to stem its massive losses.
In a statement, WeWork’s newly installed co-chief executives, Artie Minson and Sebastian Gunningham, said they had suspended the initial public offering to “focus on our core business, the fundamentals of which remain strong”.
The pair said they “have every intention to operate WeWork as a public company and look forward to revisiting the public equity markets in the future”.
The shared workspace operator had planned to start an investor roadshow earlier this month before an IPO. But the company, which had been valued at $47bn earlier this year, found investors worried by its valuation and by corporate governance issues. It was forced to slash its valuation by more than half.
Last week, the co-founder and chief executive, Adam Neumann, was ousted from the company, which was until recently the most valuable start-up in the US.
Neumann was axed after the Wall Street Journal revealed he had taken $700m out of the company before the IPO. Investors questioned a dual-class share sale that would have given Neumann and his associates total control even after the IPO.
Neumann’s eccentric behaviour further undermined his position, with reports of marijuana smoking on private jets, tequila shot-fuelled meetings, and even claims he was working on becoming immortal.
WeWork’s new co-chiefs are reportedly planning thousands of job cuts and other cost-saving measures, including the sale of a $60m jet bought last year, as they seek to staunch WeWork’s massive losses. Some 5,000 employees, one-third of the company’s workers, could lose their jobs.
RPA Perspective We Co, as WeWork’s parent is called, had $2.5bn of cash as of 30 June and is running through about $700m each quarter.
The company would have raised billions for new spending from the IPO and had been expected to receive loans of $6bn if the share sale had gone ahead at its original price.
The company’s cash position is further complicated by a bond offering that We made last year. Under the terms of that deal We must keep at least $500m of cash, according to S&P Global Ratings. Last week S&P downgraded the company’s bonds to negative from stable.
We’s stock market flop is the biggest failure yet for the new generation of tech giants. The company is the largest private tenant in Manhattan and London and is still growing rapidly. But its once enormous valuation has been cut as investors have questioned its claim to be a tech company that runs a “physical social network” and started to value it as a property firm.
WeWork rival IWS, which also runs co-working spaces, and is of a similar size to WeWork is valued at just $3.6bn, a third of the $10bn some analysts have claimed We is now worth.
The pace of We’s expansion is expected to slow as landlords become more cautious of signing deals with the company.
