{"id":253,"date":"2019-12-30T09:29:52","date_gmt":"2019-12-30T09:29:52","guid":{"rendered":"https:\/\/blog.tickertape.in\/?p=253"},"modified":"2020-02-12T16:08:33","modified_gmt":"2020-02-12T10:38:33","slug":"wework-ipo-debacle-that-hurled-we-company-down","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/","title":{"rendered":"WeWork IPO debacle that hurled We Company down"},"content":{"rendered":"\n<p>Just in August 2019, WeWork, a realty giant valued at $47 billion announced its aim of going public by offering <a href=\"https:\/\/www.tickertape.in\/blog\/ipo-investment\/\">IPO<\/a>. The American behemoth property company rented large buildings, converted them into new-age co-working spaces, and divided and let them out to businesses that didn\u2019t want to undergo the hassles of owning a property themselves.<\/p>\n\n\n\n<p>With the modern-age CEO Adam Neumann known for breaking stereotypes at the forefront, We Company would have almost made it but, bam! The controversy-gripped leader with a free mind only caused the stellar fall of his company. Next you know WeWork is actually 70% lower in value, which sums up to just $14 billion ?. Besides, the IPO is postponed, Adam Neumann came out as a not-so-saintly figure and he has stepped down from the CEO position taking the giant company down with him (maybe he liked the song: if we go down then we go down together a tad bit much ?).<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#To-be-just-or-not-to-be\" title=\"To be (just) or not to be?\">To be (just) or not to be?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#1-An-overly-ambitious-CEO-and-a-questionable-corporate-governance\" title=\"1. An overly ambitious CEO and a questionable corporate governance\">1. An overly ambitious CEO and a questionable corporate governance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#2-Softbanks-move-to-save-the-troubled-company\" title=\"2. Softbank\u2019s move to save the troubled company\">2. Softbank\u2019s move to save the troubled company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#3-WeWorks-questionable-business-model\" title=\"3. WeWork\u2019s questionable business model\">3. WeWork\u2019s questionable business model<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#4-Love-what-you-do-but-remember-you-%E2%80%98work\" title=\"4. Love what you do, but remember you \u2018work\u2019\">4. Love what you do, but remember you \u2018work\u2019<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#5-The-cost-of-offering-all-inclusive-services\" title=\"5. The cost of offering all-inclusive services\">5. The cost of offering all-inclusive services<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#Action-plan-to-save-WeWork\" title=\"Action plan to save WeWork\">Action plan to save WeWork<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#1-Immediate-financial-bailout\" title=\"1. Immediate financial bailout\">1. Immediate financial bailout<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#2-Slow-down-growth-to-curb-cash-burnout\" title=\"2. Slow down growth to curb cash burnout\">2. Slow down growth to curb cash burnout<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#3-Postpone-WeWork-IPO\" title=\"3. Postpone WeWork IPO\">3. Postpone WeWork IPO<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#4-Appointment-of-a-new-CEO\" title=\"4. Appointment of a new CEO\">4. Appointment of a new CEO<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#5-5-year-plan-to-achieve-several-goals\" title=\"5. 5-year plan to achieve several goals\">5. 5-year plan to achieve several goals<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.tickertape.in\/blog\/wework-ipo-debacle-that-hurled-we-company-down\/#WeWork-India-is-free-of-shackles\" title=\"WeWork\nIndia is free of shackles\">WeWork\nIndia is free of shackles<\/a><\/li><\/ul><\/nav><\/div>\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"To-be-just-or-not-to-be\"><\/span>To be (just) or not to be?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>However, We Company still has hopes of revival but ironically, justice seems to have failed terribly in this case. As if these ghastly events didn\u2019t do much harm, Adam Neumann walked away with a handsome compensation for stepping down as the CEO of We Company. Wait, what? Yes. How much you ask? Well, here\u2019s the almost- clear figure. Neuman will receive in all, a whopping $1.7 billion in cash and credit. In turn, SoftBank will take over We Company and address its bankruptcy. Here is the breakdown:<\/p>\n\n\n\n<ol><li>$1 billion towards shares<\/li><li>$185 million as consulting fee<\/li><li>$500 million credit to assist loan repayment<\/li><li>Maintains an unspecified stake in the company<\/li><\/ol>\n\n\n\n<p>If you are still wondering whether the compensation is a gain or a loss, here\u2019s something that can help you decide. Adam Neumann, being the founder of WeWork, held shares that had 10 voting rights each. This means, even if he left, he would still have high stakes and power in the company. Therefore, Softbank, the company\u2019s major investor, thought it inevitable to offer Neumann such a handsome going-away gift.\u00a0Amidst such a spectacular fall of We Company, the founder still seems to have not lost it all. Well, good for both and thanks to SoftBank, the God figure.<\/p>\n\n\n\n<p>However, WeWork\u2019s Chairman Marcelo Claure recently challenged reports of Neuman\u2019s payout and said it was false. Reportedly, SoftBank had declared in Oct 2019 that it would launch a $9.5-bn bailout after WeWork\u2019s IPO failed. This bailout included a $3-bn tender offer of WeWork shares, which comprised of up to $970mn shares held by Neumann. The ex-CEO, is thus, entitled to participate in the tender along with other <a href=\"https:\/\/www.tickertape.in\/blog\/shareholders\/\">shareholders<\/a> and sell as many shares as he likes.<\/p>\n\n\n\n<p>Allegedly, WeWork employees were outraged with the reports of the $1.7-bn payout, especially because they had to face unpleasant situations such as layoffs and cutbacks. Thanks to the tender offer, Neumann would now be on a par with other shareholders and receive a payout equal to the number of shares he sells.<\/p>\n\n\n\n<p>Coming to why WeWork failed, here are some reasons.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1-An-overly-ambitious-CEO-and-a-questionable-corporate-governance\"><\/span><strong>1. An overly ambitious CEO and a questionable corporate governance<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Some employees placed a part of the blame for WeWork\u2019s fall on its CEO. Neuman was known for nursing unrealistic dreams and behaving in a self-serving and outlandish manner. First, he sold the \u201cWe\u201d trademark of We Holdings LLC to his real-estate company and made a whopping $5.9 million out of it ? (he did return it to the company later, but who can turn a blind\u2019s eye to it?) Oh, and this deserves a mention, Adam bought several properties himself and leased them back to WeWork. However, the biggest showstopper that let Adam down real bad was that he sold over $750 million stocks just ahead of the IPO.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2-Softbanks-move-to-save-the-troubled-company\"><\/span><strong>2. Softbank\u2019s move to save the troubled company<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In addition to the CEO Adam\u2019s behaviour, one of the company\u2019s executive also blamed WeWork\u2019s free fall on Softbank, its biggest investor. It first poured more than $10 billion into WeWork and fed an ambitious CEO with funds to do as his heart wanted. Much to everyone&#8217;s shock, the Japan-based investor then fired the CEO after rewarding him handsomely.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3-WeWorks-questionable-business-model\"><\/span>3. <strong>WeWork\u2019s questionable business model<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>WeWork is a realty giant that lets out co-working spaces on short-term leases. While the company owns some of these spaces, it rents other large spaces on a long-term basis, recreates them into modern co-sharing workplaces and then leases them to businesses on a short-term basis. This not only makes WeWork a giant landlord, but also one of the biggest tenants in the US with 5.2 million sq.ft. of rented space.<\/p>\n\n\n\n<p>Analysts pointed out that while this business model seems to be attractive, it wouldn\u2019t thrive in the existing economic conditions. Much to the investor\u2019s despair and true to the analysts&#8217; words, WeWork did incur a heavy loss of $689.7 million out of $1.54 billion revenue in the first half of 2019.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"4-Love-what-you-do-but-remember-you-%E2%80%98work\"><\/span>4. <strong>Love what you do, but remember you \u2018work\u2019<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Working in a WeWork space largely resembles sweating out in a fancy workspace. WeWork\u2019s co-sharing spaces offer creative and chic-looking office spaces that promote the slogan of \u2018Love what you do\u2019. In addition, these spaces also offer snacks, IPA on draft, nap rooms, and phone pods, all for a noble cause \u2014 to keep the workforce happy and get work done.<\/p>\n\n\n\n<p>Lured by this idea of modern, comfortable, and coming-of-age co-sharing spaces, startups and full-fledged companies such as Slack subscribed for WeWork\u2019s services alike. Alas, WeWork\u2019s couldn&#8217;t gain much from all these modern facilities that it offered. Why? WeWork focused too much on offering couches, space to chit-chat and other common areas that don\u2019t contribute to revenue generation.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"5-The-cost-of-offering-all-inclusive-services\"><\/span><strong>5. The cost of offering all-inclusive services<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Through its co-sharing spaces, WeWork did a great job of offering an all-round and feasible solution to run a business. In addition to core operational services such as catering and reception, WeWork also offered legal, financial, IT, and not to mention IPA-pantries that helped businesses optimise on many fronts. Businesses could now gain more by assuming a lower risk of owning a physical plant, shedding out minimum capital outlay, and assuming reduced operational complexity.<\/p>\n\n\n\n<p>All these perks attracted businesses small and large, especially with millennials forming most of the workforce. Nevertheless, the business model hasn\u2019t done much good to WeWork itself. Well, it is true that the tenants could make mammoth savings on many fronts, but that leaves WeWork to make up for the costs. The losses explain themselves now, don\u2019t they?<\/p>\n\n\n\n<p>Still, We Company can be saved. Here\u2019s how it can possibly survive after all.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Action-plan-to-save-WeWork\"><\/span><strong>Action plan to save WeWork<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The complex background of WeWork\u2019s fallout complicates its revival. To clear the mess that has engulfed the company, analysts and the company\u2019s co-CEOs suggest taking the following steps that can save We Company.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1-Immediate-financial-bailout\"><\/span>1. <strong>Immediate financial bailout<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>WeWork is experiencing a severe cash burnout and, in addition, has an estimated $47 billion of lease payments that will be due shortly. Given such a situation, WeWork needs a financial bailout, which Softbank has readily offered after showing its CEO the way out. Interestingly, JPMorgan had offered to rescue the failing company too, but refused to sign the deal on the spot, which gave way to Softbank. Besides,  WeWork\u2019s board also plans to reduce costs by laying off as many as 15,000 employees. Ironically, the company can\u2019t even afford to bear the employee severance payments. As you can figure, this plan is tricky.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2-Slow-down-growth-to-curb-cash-burnout\"><\/span><strong>2. Slow down growth to curb cash burnout<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Given WeWork\u2019s high rate of cash burnout, analysts opine fresh funding is quintessential to save the company. However, even with access to fresh funding from time to time, WeWork&#8217;s ambitious growth plans can chew into all the funding that comes in. To prevent this and conserve the capital, analysts suggest curbing growth plans of the company.<\/p>\n\n\n\n<p>However,\nWeWork has to show decent revenue to attract investors. For this to happen the\ncompany will need to add properties regularly, which again needs investment.\nHow it plans to fight with this double-edged sword is up to WeWork.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3-Postpone-WeWork-IPO\"><\/span>3. <strong>Postpone WeWork IPO<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>To clear the mess and rebuild WeWork, the company\u2019s new co-CEOs have announced that they will now concentrate on their core business for which postponing IPO was necessary.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"4-Appointment-of-a-new-CEO\"><\/span><strong>4. Appointment of a new CEO<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>After Neumann stepped down as the CEO following the IPO debacle, WeWork got itself a new CEO, Sandeep Mathrani. A real estate veteran, Mathrani is expected to assume his position on 18<sup>th<\/sup> Feb 2020. Mathrani has, to his credit, experience in reviving ailing firms such as GGP, a mall operator that hit bankruptcy in 2010. Given his grounded personality and strong experience in real estate business, the new CEO is shouldered with the responsibility to turn around WeWork\u2019s current state.<br><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"5-5-year-plan-to-achieve-several-goals\"><\/span><strong>5. 5-year plan to achieve several goals<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>As per recent developments, WeWork is looking to recover by achieving one goal at a time. Between 2020 and 2024, the troubled realty-giant is looking at meeting the following goals:<\/p>\n\n\n\n<ul><li>Declare the 1<sup>st<\/sup> ever quarter with $1bn revenue in 2020<\/li><li>Post a positive <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-ebitda\/\">EBITDA<\/a> in 2021<\/li><li>Be free cash flow positive by 2022<\/li><li>Get 1mn memberships by 2023<\/li><li>Achieve $1bn free cash flow by 2024<\/li><\/ul>\n\n\n\n<p>After all this, you must be interested in what happens to WeWork India, the US realty giant\u2019s Indian subsidiary.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"WeWork-India-is-free-of-shackles\"><\/span><strong>WeWork\nIndia is free of shackles<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>With We Company, the parent entity, laden in deep turmoil, the questions of WeWork India&#8217;s sustainability have slowly cropped up. However, Jitu Varwani, Chairman of Embassy Group, the Bengaluru based company of which WeWork India is a fully-owned subsidiary clears the air, much to the relief of its stakeholders.<\/p>\n\n\n\n<p>He says that WeWork India is unaffected by the parent company\u2019s IPO debacle as the former is a 100% subsidiary company, which gives WeWork no control on its operations. He goes on to reveal that the Indian subsidiary plans to fuel its growth plans by raising over $200 million. In addition, he reassured stakeholders by revealing WeWork India\u2019s plan of doubling the number of desks in operation to 1 lakh by 2020 amidst the parent entity\u2019s struggle at the global level.<\/p>\n\n\n\n<p>Varwani also reveals that Embassy Group had invested Rs.1,500 crore in the WeWork India and affirms that the subsidiary has grown quicker than its global counterparts. WeWork India currently operates across the top six national markets in the country. Despite the mess caused by We Company, the subsidiary extends its continued support to the parent entity and reveals its intentions of sharing a chunk of the Rs.4,000 crore that it plans to raise to fuel expansion.<\/p>\n\n\n\n<p>That\u2019s pretty much about the WeWork (or not work?) IPO fiasco, folks. Let us know what you think in the comments below ?.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The interesting story of We Company, whose valuation fell from $47bn to $14bn after announcing IPO plans<\/p>\n","protected":false},"author":27,"featured_media":621,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[9,1727],"tags":[],"acf":[],"modified_by":"Aradhana Gotur","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2019\/12\/We-work-scaled.jpg?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/253"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/27"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=253"}],"version-history":[{"count":16,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/253\/revisions"}],"predecessor-version":[{"id":802,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/253\/revisions\/802"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/621"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=253"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=253"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=253"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}